RSU, ESPP and ESOP – Understanding Meaning and Taxation

POSTED BY Jagoinvestor ON March 25, 2013 COMMENTS (162)

Most of the people who join their first job,  get benefits like RSU, ESOP and ESPP as part of their CTC package (infact this is how employers show a high CTC while recruiting).However most of the employees do not understand these things in the beginning. Over the next few months, they start getting some knowledge about these benefits as employee.

A lot of people confuse these 3 things with each other and often do not have a full understanding of what they mean and how they work and what are the tax implications when they exercise their benefits.We will now take each one of these and understand them.

employee benefits RSU ESOP ESPP India

In this articles lets understand all these 3 things – RSU , ESOP and ESPP in detail.

1. RSU (Restricted Stock Units)ESOP

RSU or Restricted Stocks units are very simple to understand. The Company gives company Stock to an employee without any conditions, however there is a vesting period involved. Vesting Period is the tenure for which you will have to wait, before you can claim those shares. So if a company gives you 100 RSU vesting in 2 yrs. That simply means that after 2 yrs, you will get 100 stocks of the company. It will be all yours and you are free to keep them or sell them after that. RSU’s are also a great way to reward the employees, like in 2012 WIPRO awarded 4.5 million RSU’s to its 1200 employees (mostly top management).

RSU’s are a great way to make sure that the employee stays with the employer for long term. Imagine a company, who gives 1000 RSU’s vesting in 4 yrs. An employee will thinking many times before changing his job, because if he leaves the job and moves to another company, then he will loose those RSU’s, which might be worth a lot of money depending on the stock price. I had myself got RSUs from Yahoo, when I joined them, but due to their declining stock price over so many years, RSUs were not a great motivator for me. It was just a bonus amount for myself.

RSU can also be given in phased manner sometimes, like 25% RSU each year. So if company is giving 100 RSU’s with condition of 25% RSU vesting each year, then 25 shares will vest in first year, then another 25% in 2nd year and like this, only after 4th year, an employee will be able to get all 100 stocks.

Its worth noting that if you leave a job, a lot of companies require you to sell your RSU’s in next few months. for example next 3 months.

2. ESOP (Employee Stock Options)

Employee Stock Options or ESOP are generally given by most of the big companies in India, especially IT companies which are listed outside India. ESOPs are nothing but “OPTIONS”, which are also in stock market in India (remember Future & Options?)

Let me tell you what Stock Options are in general. If a person has a Stock Option, he actually has a right to BUY a stock in future at a pre-decided price agreed at the time of giving those stock options. So in future whatever is the market price does not matter, you always have an option to buy it at the price which was agreed upon. In this case if market price of the stock is above the pre-decided price, then you can just exercise your options of buying the stock and instantly you will be in profit. If however, the current market price is less than the pre-decided price, then you choose not to exercise the stock option at all and nothing happens.

Let me give you an example. Let’s say that an employee joins a company on 1st Jan 2013. His company gives him 500 ESOPs with vesting period of 3 yrs and at the vesting price of Rs 200. What this means is that his vesting date is 1st Jan 2016 (after 3 yrs) , On that date, he has a OPTION to buy 500 stocks of the company at Rs 200 if he wishes. Now lets say on 1st Jan 2016 …

Case 1 – The stock price is Rs 800

In this case, the employee can exercise his option and he can get 500 stocks at only Rs 200 . At this moment, the employee will make a clean profit of Rs 600 each shares and a cool Rs 3,00,000 . Note that he does not have to pay anything here, when he exercises his option, he will automatically get his profit without putting anything from his pocket. It makes sense to exercise his option in this case, because vesting price is less than market price.

Case 2 – The stock price is Rs 130

In this case, it does not make any sense to exercise, because you will be in loss, because the price you have to pay is less than market price, so you let this option go.

Note : In case of stock options, you can never make any loss, it will always be some profit only.

3. ESPP (Employee Share Purchase Plan)

ESPP or Employee Share Purchase Plan is a benefit given by employer to its employees to purchase the stock of the company at a discounted price. In an ESPP plan, an employee has to contribute a part of this salary in ESPP plan each month. An employee can choose how much of his salary he wants to contribute by himself. It can range from 1% to 15% of his salary. All the money which he contributes gets accumulated for few months and then in one go, stocks are purchased for him at some discounted price. On what price the discount will be given depends on your company EPSS plan. However in general its the minimum of the prices in the start of the EPSS plan and at the end of the ESPP plan. Let me give you an example.

Suppose your company offers a ESPP plan twice a year which you can opt for, one window opens is Jan-June (where you can join in Jan only) and other is July to Dec (You can join in July only). So you will have to tell the company how much you want to contribute each month before hand. If you choose it to be 10% , then 10% of your salary will be cut for ESPP plan and you will get the rest in your hand.

Now suppose a person chooses Jan-June window and he is contributing 10,000 a month for this, then in next 6 months, he will accumulate Rs 60,000 for ESPP, and now at the end of the Plan he will be able to get the shares.

What will be the share price considered for him ? 

Let’s say that the stock price in the start of the plan (Jan month) was Rs 100 and the stock price at the end of the plan (June) was Rs 120. Then the stock price considered for him will be minimum of 100 and 120 , which is Rs 100 and on this he will get 15% additional discount and his final price would be Rs 85 only.

Note that this example is assuming that minimum of two is taken , your company EPSS might just consider the “starting price” or “ending price” .. So please look at your company EPSS plan in detail.

When to choose ESPP plan ?

ESPP is a great way to get the stock price at discount, but one should anyways take care of few things. If company’s future prospects look great in future, then one should buy the stocks anyway, so ESPP becomes a great deal where you sure shot get 15% discount. However if company’s prospects look bad in future, then you have to figure out if it’d make any sense to go for ESPP plan or  make a better use of your money elsewhere.

Below is a video from Salesforce which explains their ESPP plan, watch it to get a feel of how EPSS works ?


Taxation on RSU, ESOPs and ESPP

The taxation for RSU, ESOP’s and ESPP is governed by same rules, as all of them have to deal with stocks which a employee acquires and the taxation is pretty simple to understand. There are just two rules.

Tax to be paid in India

When you sell the your RSU/ESOP/ESPP (after vesting period is over) and get back the money, its your responsibility to pay the tax on the amount in India. How much tax is to be paid by you, depends on the nature of the gains. If you sell the shares before 1 year of acquiring the shares, then the gains are called Short Term Capital Gains (STCG) and if you sell the shares after 1 year, then the gains will logically be Long Term Capital Gains.

If stocks are listed in indian stock exchanges, then you have just have to pay 15% tax on Short Term Capital Gains and no tax on long term capital gains. However if stocks are not listed on indian stock exchanges, but some foreign country, then you will have to add the short term capital gains tax in your income and pay tax as per your slab rate, and 20% with indexation on the long term capital gains, which is the case when STT is not paid when the transaction is done.

Below is the simple table which will explain things to you


Listed/Gain-Type Short Term Capital Gain (Less than 1 yr) Long Term Capital Gain (More than 1 yr)
Stocks Listed on Indian Stock Exchange 15% Tax on Profits No Tax
Stocks NOT  Listed on Indian Stock Exchange Profits will be treated as your Income and taxed as per your Slab 20% with Indexation

Incase Stocks are listed on Foreign Stock Exchange

In these cases, it might happen that when you sell your RSU, ESOP’s or ESPP, the tax is directly cut by the trading portal like etrade (in US) and you only get reduced number of units (after tax). After that when you take the money back in India, you might have to pay the tax on the income again if the double tax treaty is not available with that country.

I hope, you got a lot of clarity about RSU (Restricted Stock Units), ESOPs (Employee Stock Options) , ESPP (Employee Share Purchase Plan). These are some of the benefits employees get and understanding them is very critical for them. Please share if you have any of these benefits and if you had any confusion around them?

162 replies on this article “RSU, ESPP and ESOP – Understanding Meaning and Taxation”

  1. Anand says:

    Hi Manish,
    It was a great article. I really appreciate it. Most of my doubts were cleared. But I still have one question.
    Here is my detailed scenario/ background
    I am Indian Tax Payer and working in US based company which is listed on NASDAQ,
    In my case, both countries, INDIA and U.S. has tax treaty rule. So double taxation won’t happen.
    I receive RSU, when the shares gets exercise, I get less shared in my Demat account (e-trade in my case ) to adjust tax, then why value of all RSU are added in perquisite in form 16 as the tax has been paid in form of shares
    Example let say 8 shares are vested but I get only 6 shares in my e trade account which I can sell.
    and let say price is 50$ per share (70INR =1 USD ) , so 8*50*70=28000 INR is added as perquisite to my form 16.
    My question is How DTA A rule works here

    1. Jagoinvestor says:

      Hi Anand

      I think this has moved to a CA zone now 🙂 .. Better check with your CA on this as I dont have detailed answer


  2. Rajan says:

    I am a fresher in India. I am getting 35lakhs from an Australian company as stocks in 4 years. 25% each year. Can you please tell me how much money will I get per year if I decide to sell the stocks and bring that money to India?

    1. Jagoinvestor says:

      It will depend on the price at the time when you sell it.

      Also equity taxation will apply.. One need to have more details to comment more on that

  3. Hinal says:

    Hi Manish,

    My query is whether a private limited company can give an Employee Share Purchase Plan?

  4. suvro says:

    While exercising the option, if the strike/exercise price is less than FVM, will any tax liability appear?

    1. No , in that case why would you exercise 🙂

  5. Aruna says:

    Hi sir
    I need clarification regarding RSUs for calculate capital gain RSUs exercised is 76 infromation regarding exercised RSUs is
    Disbursement Details
    Gross Proceeds $1658.16
    Commission is $19.95
    SEC Fee is $0.04
    Taxes Withheld $1566.42
    Net Proceeds $71.75
    Execution price is $96.09
    In this case he sold 24 units
    How to calculate Gross Sale Value????
    no.of shares sold*Execution Price=Sale value is it correct
    Purchase Value how to calaculate????

    1. Hi Aruna

      This query belongs to CA domain, hence we are not the right people to comment on this issue.

      I suggest you get in touch with a CA for this in your city.

      We also have a CA partner incase you want to explore that, Just fill in your details here and they will give you a complimentary call back


  6. Arun says:

    I work in a US based privately owned (unlisted) company. I was given some share options (ESOP) in 2012. I did not have to pay the grant price back then (so my cost of acquisition was nil). The options have fully vested now in the past four years. If I were to exercise these now I will have to pay the exercise cost (grant price) and the company will buy it at the Fair Market Value. Wouldn’t I have to mention this in ITR in the year that I actually exercise my option? Do I need to show this in the FA schedule section D in the ITR, given that my cost of acquisition is nil and there isn’t any income derived from it? I haven’t mentioned this in previous years until now. Also as you have mentioned, will the applicable tax be 20% with indexation since its been 4 years now?

    1. Hi Arun

      This query belongs to CA domain, hence we are not the right people to comment on this issue.

      I suggest you get in touch with a CA for this in your city.

      We also have a CA partner incase you want to explore that, Just fill in your details here and they will give you a complimentary call back


  7. Anurag says:

    Hi Manish,
    This is an immensely informative article. I have a question regarding same and I could not get the answer despite googling it. 🙂
    If I have RSU (list in US) and sell the same, I incur some cost for brokerage and other expenses. Can I reduce those expenses from my taxable income in India?
    Thanks for all the help!!!

    1. I dont think you can reduce them !

    2. Ankish says:

      If you are resident of India, then your global income is taxable in india. so when you sold the RSUs in US then it is taxable under the head Capital Gains. Hence you can claim the expense of brokerage.

  8. Ram says:

    if some RS. of RSU are mentioned in CTC then whether that RSU are given on First Year of Employment or for every year? Please Reply me…
    Thank You

    1. First year generally !

  9. Sudheer says:

    Dear Manish,
    I think there is a small correction required in the table you have given. For ESPP and RSU for shares listed in foreign stock exchange, if one has to get a Long Term Capital Gains benefit, the shares have to be held for more than 36 months. This is because they are not listed in a recognized stock exchange where STT is paid, as per definition of IT.

    Am I wrong ?

    1. I think you are correct. I will make that change on my side

  10. vinay says:

    Hi Manish,

    i’m asking same question asked by Ashok, can u please answer?

    would like to know if ESPP should be shown in ITR2. These stocks are transacted on NASDAQ.
    I have not sold these shares and TAX on Fair Market Value is already deducted from Source.
    I’ve two queries:
    I get dividends from my holding and how much is the tax liability . Do I need to declare this amount in ITR2? If yes, where?
    I think I should show something in schedule FA-D or FSI of ITR2. please guide me?

    1. As far as I know, dividends are tax free in India. Regarding which section it has to be mentioned , I think a CA would be able to help on that, I am not sure.


  11. ashok says:

    I would like to know if ESPP should be shown in ITR2. These stocks are transacted on NASDAQ.
    I have not sold these shares and TAX on Fair Market Value is already deducted from Source.
    I’ve two queries:
    I get dividends from my holding and how much is the tax liability . Do I need to declare this amount in ITR2? If yes, where?
    I think I should show something in schedule FA-D or FSI of ITR2. please guide me?

    1. Hi ashok

      A CA is more qualified to answer you query, hence I suggest better get in touch one.

      We are not right people to talk on this


  12. Jitendra says:

    Hi Manish,

    Are these RSU/ESOPs considered as foreign assets for entry in ITR2?
    How is the value calculated – is it on the last day of the financial year? What if I sold the vested shares before 31/Mar?
    If yes, how is the value calculated for stocks which are not vested yet?


    1. Hi Jitendra

      A CA is more qualified to answer you query, hence I suggest better get in touch one.

      We are not right people to talk on this


  13. Jia says:

    Hi Manish,

    I am trying to compare actual profit an employee gets if he/she opts for RSU or stock options for shares of company listed in US

    Say company gives 1000 stock options or 250 RSU which will be given in 4 years as 25% every year.
    Option1: Opt for 250 RSU
    I receive 62 shares(250/4) every year
    let the value of each share be X$
    1.So will every year for next four years, 62*X$ be added to my total taxable income and I pay tax on it(as per my tax slab)?
    2. As the stock is not listed in India and only listed in US, whenever I sell my shares, depending on if I sell it before one year or later,I again pay short term capital gain / long term capital gain respectively on the profit to Indian tax dept
    3. I donot pay any tax in US(or get it refunded if deducted at the selling time) , as I already pay tax in India. Or do I still need to pay taxin US

    Option2: Opt for stock options
    Say grant price /agreed upon price is X$
    I get an option to buy 250(1000/4) shares at the end of every year for four years
    First year: If market price has increased say its now X+10$. Then I exercise my option and buy shares at X$. Whats the tax i pay here(I just buy dont sell anything)
    2.If I sell this share within one year of receiving at X+15$ whats the amount i have to pay to India tax dept and amount to be paid to US tax dept
    3..If I sell this share after one year of receiving at X+15$ whats the amount i have to pay to India tax dept and amount to be paid to US tax dept

    Second year:Share prices has fallen down to X-2$. Hence I donot want to exercise my optionon this day. Does that mean I just lose on this 250 shares or can I wait and exercise this 250 shares after another 6 months or a year when share price goes up to X+5$

    Third year:Price is higher and i exercise my option?


    1. Hi Jia

      Your cases is a bit complex and I think we are not the right people to comment on it.

      My suggestion would be hire someone who is professional in this area and consult them


  14. Lokesh says:

    Hi Manish,

    For FY14-15 i have received RSU from my company(listed in US) as below

    May 2014 – 2342 (@$3.87) = $905.58 = Rs 54,670
    Aug 2014 – 747(@$4.12) = $3077.64 = Rs 187725.54

    Total = Rs. 242395.54

    I see this amount is mentioned in my IT computation as prerequisites and being taxed, i would like to know if this amount will be taxed even i have not exercised the stocks?

    Unfortunately the stock price dropped to $2.37 so can’t excute it now and have to wait..

    Thanks in advance.


    1. Yes, it will be taxed for the year you get it

  15. Aditya says:

    Hi Manish,

    Is tax rate given above still valid for shares of US company listed in NASDAQ ?
    Is there any change in duration of computing short term gain (less than 1 year) and long term gain ?
    I am mean for RSU/ESPP for indian employee of US company,
    Tax on short term gain (shares hold less than year) – In tax slab
    Tax on long term gain (shares hold more than year) – 20 % with indexation
    Or this duration is changed to 36 months ?
    Please comment.


    1. Hi Aditya

      Better consult a CA on this

  16. Sankar says:


    I got awarded some RSUs when i was in India. By the time they got vested, I moved to US (intra-company transfer). But when the RSUs are vested, I was taxed for both India and US.
    How and where can i get my tax returns? Please clarify. Appreciate your help in this regard.


  17. Yash Pal Aggarwal says:

    My son an NRI working in USA & was offered ESOP,s of an Indian company. At the the time of exercising his option he paid the tax to the US Govt. ( I mean tax on the difference of FMV of shares traded at National Stock Exchange & the option price of Shares Indian Rupees ) Now he wants to sell his shares after holding them 2 years in NSE & STT has to be paid . My question of what would be his Tax implication in India as his long term gain in the situation he has paid the Tax as well as price of shares in USA in US Dollars. He converted the option price & FMV of Indian Rupees in US Dollars for the purpose of making payment in USA.

    1. If tax is paid in US , then no additional tax to be paid in INDIA for that conversion . But for 2 yrs, whatever interest he has earned , that has to be counted for taxation purpose !

  18. Vishwesh says:

    We had ESOPS with a US company which got vested and encashed due to acquisition. The original US company was not listed in US stock exchange as well. We got all the money in hand so tax deduction has not happened in US. Please note ESOPS issue date is more than 1 year old. How much tax do we have to pay on this ?

    1. In that you it will be considered as your income in India and you have to pay tax on it as per your tax slabs !

  19. Pingback: Tax Accounting Espp
  20. Amit says:

    My company gave me RSU, which are listed in US. They opened a a/c for me with morgon stanley in US. I do have some vested RSUs in last financial year. My company already deducted tax on the vesting day and my Form-16 has the required entry.
    Do I need to report it as a foreign account in ITR-2 – TA_FR section in type E?

    1. I dont think you need to inform anyone out side India for this

  21. Bala says:

    Dear Manish,
    The article was very helpful to understand the taxation. But I am confused where to enter these details in ITR2 form.
    For example if I have LTCG from foreign ESPP which section of ITR2 needs to be used?

    1. Hi Bala

      Hire a CA for help at this level . This was just an entry level article to help you understand the concept !

  22. Deepak says:

    Hi Manish ,Thanks for the very Good information about RSU,ESOP’s.
    I am trying to understand What Are the tax implications of Dividend incomes from MNC’s (NYSE registered) company as per Indian Tax Laws.

    Please advise…

    Thanks in Advance

    1. DIdnt get your query ? What is “divided income” ?

      1. Deepak says:

        Hi Manish..What i meant was “Dividend”..profits shared by a company to its shareholders maybe like a quarterly or yearly payout.In my case I am purchasing ESPP of my company (MNC (NYSE registered)).I am getting dividend cheques every Qtr..I am trying to understand Indian Tax Law related to dividend income from US based company.I am aware that dividend from Indian companies are Tax Free as of now in hands of Share Holder.Hope that clarifies my query..Sorry for confusion.

        1. Hmm .. Indian dividend income is tax free, but I am not sure what about US company dividend , please ask it on our forum –

  23. Bis says:

    Thanks for the great article Manish. But I’m fairly confused with the “two stage” taxation of ESOP ( In my case I have MNC listed in US ESOPs . I sold some stocks after my vesting period. The stock broker is Fidelity, first they cut 30% tax in USD and then refund the amount through Indian Payroll. India payroll
    has cut some ‘prerequisite’ tax as part of Fom-16 IT computation. Now the question is whether I need to again add the final gain (which I got and transferred through wire from US to India) as part of my “Other Income” and pay 30% tax on it? Then it will be too much of a tax!

    1. I am not sure if I have full understanding , but as far as I know, you can bypass the tax second time if you fill up a form downloaded from US tax website . Not very sure of it .. ask on our forum

  24. Jeeten says:


    Is the same First in First Out method used for calculating capital gains for MNC RSUs? My account has date wise details of different RSUs that were acquired and I sold something in between. Should I be calculating capital gains considering FIFO or the one I sold.

    1. Yes , FIFO method should be used !

      1. Jeeten says:

        Thanks Manish

  25. Yogesh Patil says:

    Hi Manish,
    I need your help here. I joined a company in India 6 years ago and got 100 ESOP at vesting price $1/share. When I left company the price was $3/share. To buy the ESOP I paid $100 + Income tax of flat 30% on $2 (Price when I left company – Vesting Price). I guess it is called capital gain. Now Company may go IPO next year in USA. Here are my question

    1. Can I sell my stocks when company go IPO. Some website says that ex-employee can not share stocks still one year from the date of IPO. Is this true?

    2. What happens to the Tax paid on additional $2. How can I show my earlier tax paid. Assuming market price $6, Will I have to pay Income tax on just $3. If yes, how much % of tax needs to be paid.

    3. Since company will be listed in US. Will I have to pay tax in USA and India. I never been to USA. If yes, how much % in india and how much % in USA. If only in india, how much % tax.

    4. What all things can I do to save tax.


    1. 1. This will be decided as per your company policy. You should read your contract for this

      2. Did you pay tax in US or India ? I think there is a form which you need to fill up (I dont remember the form name) and then you will get a certificate

      3. Due to double tax treaty, if you have already paid tax in US , then you dont need to pay that in INdia,but you need to show a certificate for this. I suggest you hire a good CA on this matter


  26. Raja says:

    Hi. I had acquired some rupee denominated shares of my previous employer based in India through ESOP. They were vested in 2008. As the company has not listed itself on to the stock exchange (yet to go through IPO), the shares are blocked i.e. I am not allowed to sell. However out of blue, they have paid me some dividend income and that income has been paid in to my bank account few months back. How should I treat the taxability of this income in my income tax returns for AY 2014-15?

    1. Dividends from Shares are TAX FREE !

  27. sridhar says:

    Fantastic. Very nice material.
    please let me know which section of taxation rule is this covered?

    1. I am not aware of the exact section number. Why do you need it ? A CA will be able to point that out to you !

  28. lalit says:

    Hi i have ESPP shares that i acquired between 2007 and 2009 while in us. Now i am in india and not had nri status for more than 3 years. If i sell the shares now what taxes will be imposed on me. The stock is not listed in india.

    1. Surely you need to pay the tax, because eventually money will arrive in India in your account and its your income IN INDIA !

  29. Ashish ARORA says:

    All, I here’s my situation: I am an employee of an Indian subsidiary of aUS based Nyse listed company. The parent company has granted me esops which is were vested and excersised by me before the company went public. My Indian employer deducted TDS on the gains made by me per the book valueoof the stock. The company has now gone public. My questions are as follows:

    If I sell my shares will I be charged taxes in US?
    When I transfer the money to India will I have to pay taxes in India?
    Which broker in In USA provides accounts to jon resident aliens?

  30. krishna_nair says:

    I had some of the allotted RSU’s vested in the year 2009 for which perquisite tax was deducted and reflected in my Form-16. Subsequently in the following year 2010, I sold the shares below the FMV. The shares are listed in the US. I incurred no profit due to capital gains.
    Am I liable to any tax because of this, considering that perquisite tax has been deducted and no subsequent profit was made?

    1. No tax in that case !

  31. vasanthi says:

    I am entitled to 150000 of a Delaware Company’s Class C Common Units.
    I have not made an election u/s 83(b).
    I had been providing my services from India to a bermuda exempted company being an wholly owned subsidiary of the Delaware Company.
    Vesting date is as follows:
    effective date (Oct2011) 20%
    next vesting date (Dec 2012) 40%
    Now in September 2013 I am credited with the cash equivalent of my units that has become vested.
    please let me know how this would be taxed for AY 13-14.
    Nothing has been offered for tax in the previous assessment years in India.

    1. Please open a thread to discuss this on our forum

      1. vasanthi says:

        opened the thread, no respone yet

  32. Sundaresh says:

    Thanks for all the useful tips and advice ; You have answered a similar query earlier- but I need a little more clarity

    Nov 2010 : 140 RSU vested – value of INR 250K
    Nov 2012 : 140 RSUs sold – Value 69K

    Do I get to claim losses for FY2012-13

    1. Yes. If its NOT LISTED in India, you should get the benefit !

  33. Sarangarajan says:

    Here is the question
    Assuming I am provied 70 shares on 10/Dec/2012 post tax (100 RSU provided and 30 shares sold to cover the tax). On that the share prices was $20 and assume 1USD = INR 55

    Now if I sell today the share for same price 20 USD but the conversion rate is 60 (1USD=INR 60) — do I need to consider

    Selling price = 70 * 20 USD = 1400 USD
    Cost Price = 70 * 20 USD = 1400 USD
    so GAIN / LOSS == 0 USD — so no gain

    Or do we take it as follows

    Selling Price = 70 * 20 * 60 = 84000
    Cost Price = 70*20*55 = 77000
    So GAIN = 7000 hence tax has to be paid for 7000

    Please confirm which is the approach

    1. Its the amount you realised in INDIA . So if you got it in India rupees, then you made the gain in absolute terms. so you will have to pay tax

  34. vin says:

    Hi Manish,

    Thanks for informative article. One query…
    for LTCG calculation on ESOP can vesting date be considered in case options are not excersied? or Is it must to exercise options for LTCG?

    1. No , you have to consider the selling date !

      1. vin says:

        Thanks Manish for response. I think I was not clear in my query. There is no confusion about selling date. It is more about buying date. Let’s say after ESOP vesting (without excersing) I directly sell those after one year then will it LTCG? or it is mandatory to excersie first and keep it for year to get LTCG benefit. Thanks.

        1. No , when you sell, its automatically considered to be bought on vesting date, so it will be LTCG

  35. Amit says:

    This is a great article. Clarifies a lot of doubt I had till now.

    However, I still have one query. For calculating tax on RSU sale, is it the price of “Vesting Date” or the “actual RSU crediting date” taken into account?

    In my case, though the RSUs were vested on Feb 28th 2013, the actual shares were credited into my account (and became available for sale) only on Mar 2nd 2013, after 31.1% of the vested shares were sold to adjust for tax.

    In this case, will my purchase price be February 28th 2013 or March 2nd 2013?

    Please respond ASAP as I need this information to file my tax before July 31st 2013.

    1. I think it will be vesting date , but there is no standardization in this I guess

      1. Amit says:

        Thank you so much Manish for your timely response. It really helped.

  36. Sarangarajan says:

    Following is my question

    RSU received (after adjusting for tax) on 10-Dec-2013 and 10-Mar-2013 are 20 & 20. If on 10-Dec-2013 share prices was 30USD and on 10-Mar-2013 it was 32 and if I sell at 35 today — can we use Cost of Index to arrive at todays purchase price and then calculate the short term tax
    Purchase price for 10-Dec-2013 shares = 20 Shares * 30 USD * 939/852 (cost of index) = 661 USD
    Purchase price for 10-Mar-2013 shares = 20 Shares * 32 USD * 939/852 (cost of index) = 705 USD

    Total Sale value = 40 * 35 = 1400 USD
    So net Gain/loss = 1400 – 661 -705 = 34 USD (assuming no cost for transfer)

    So do I pay 30.09% of 34 USD * today’s USD to INR currency conversion

    Please clarify whether the above method is correct.

    Thanks and Regards

    1. I think we need long discussion on this , better open a thread on our forum –

  37. abc says:

    How can short-term capital gain tax on ESOP sold in USA be saved? Can it be adjusted against short term capital loss for debt/equities funds in India? Can it also be adjusted against long term capital loss for equities sold in India? Is there any other option?

    1. But if its not listed in India , then the concept of short term gains (before 1 yr) does not arise

      1. abc says:

        Thanks for the response. Do you mean to say that the short term capital gain on ESOP sold in USA can not be adjusted against any loss (short term or long term) on equity or debt funds?

  38. karthik says:

    hey manish,

    i’m resident according to Income tax, i got RSU of stock which is listed in nasdaq they have deducted tax and given me reduced shares (eg 100 shares rsu they gave me 80shares) how is it taxable in india? will i get tax credit in india? shares are of US co sold. if i sell shares in US how it will be will be taxed.

    i have even got ESPP that is also of US co issued there and even sold in US. how will i be taxed in india ?

    could you kindly help me in this .


    1. But Karthik

      We have already discussed the same in article. where exactly you do not have clarity ?

  39. Kush says:

    Hello Manish,

    You have very interesting and thought provoking articles. Please keep the good work. I wanted your perspective or guidance on my query if possible.

    I was having ESOP from US based company listed in US NASDAQ. I was vested these shares on 01-June-2007 @ USD 0.59/share. I held 361 shares. I sold the shares on 28-June-2012 @USD 16.50/share. My company has deducted Tax @ 30.9 % along with transaction fees and total amounts to apprx. USD 2000 dollars.

    I am an Indian resident and file returns in India. Please can you let me know the tax implication and can I claim LTCG. Can I claim a refund of this additional tax deducted along with transaction fees.

    How is the LTCG calculated.

    Thanks in advance

    1. Kush

      Generally companies do not cut the tax, but that might have changed in last few years . You will not be able to claim LTCG , because its not listed on Indian stock exchange , so its out of the tax purview here .

  40. Abhinav says:

    In case of ESPP, here is what happens with my company (US Nasdaq listed)

    As mentioned above, at the time of purchase, the 15% gain (as we received the stock at 15% discount) is calculated based on FMV, and taxed immediately as short term / income tax here in India.

    For subsequent purchase, you have mentioned less than 1 year as short term and more than one year as long term.

    However information I received is that in case of “Foreign Listed Stocks/Companies), someone mentioned Long term as 2 years, others as 3 years. (I have no particular reference to back this information).

    Could you confirm that Long term is indeed more than 1 year ?

    BTW this is the best article and discussion on this topic I have found yet 🙂

    Thanks !

    1. Thanks Abhinav 🙂 , share it with others !

  41. Vivek says:

    STCG is taxable at 15% while LTCG is taxable at NIL (STT has to be paid).

    Gains from Derivatives (Futures and Options ) are always taxable. I guess, in India we do not have Long-term derivatives. So, the question of LTCG in derivatives does not arise.

    But, I am not sure about ESOPS. Its essentially a Derivative product (Options). I see no reason why the tax should be zero.

    I guess I will have to dig in more to find out.

    Will get back to you.

    Anyways, as always, a very interesting article.

    1. Thanks for sharing that knowledge !

  42. Ravi says:

    Hi Manish,

    Can you please help me understand if employer needs to deduct tax while vesting RSUs to employees? this is regarding RSUs alloted by US MNC listed on NYSC and RSU vested to Indian employee based in India.

    in another scenario, if employee has bank account in US, can he show income & sell both in US and what will be tax impact in that scenario?

    1. I was into similar situation when I was in YAHOO in bangalore . in mycase , when my RSU;s vested, Yahoo did not cut any tax from their side in India, I had to pay my own tax . Not sure what rules changed from that time !

      1. Neeraj Sharma says:

        Manish…..which ITR form you filled here in your case…..ITR-1 or ITR-2 ??

        1. Truely speaking my CA takes care of that , I will have to check with him

  43. hari says:

    Thanks Manish for this info.
    If this article was present 3 years back, I would not have lost money. 🙂

    When I joined my current company, I was allocated a big chunk of ESOPs. I was have zero knowledge of these concepts. When I asked the HR person, he said all the stocks are mine and i can redeem them after some period. Thinking that its all mine, I accepted the offer. But later (after 2 years) I realized that I would be getting only the delta amount, not the entire stock cost.

    1. Hmm.. you should have read more about it 🙂

  44. Balakrishna sharma says:

    My case is different – I have ESOP options from headquartered in US listed in Nasdaq, vested entirely when I was working in US as a nonresident alien. Relocated/transferred back to India 7 years ago and continue to work for same company till date here in India. Couple of days back I exercised/sold portion of the vested ESOP shares. In this case income tax withheld for US tax(based on #of days I stayed in US) as well as Indian tax by my company – more than 45%on net gain. The reason stated by my company was that I will have to pay US income tax because I was a nonresident alien at the time of vesting period and I will have to pay Indian tax because the gain is treated as a regular income here in India. To me it is a double taxation and not sure anyone experienced this scenario before and anyone successful in collecting refund if any. What are all the options I have..?

    1. I remember there was some form to be filled and submitted to the Trading portal in US where you mention that there will be double taxation in India and they refund you the tax cut there .. Not sure on that but !

      1. Babua Majumdar says:

        It’s the same for me. I did spend some time in US during vesting, moved to India 9 years back. When I sell my ESOP there’s a tax deduction of 25% in US and TDS being deducted in India at 30.9% rate. Anybody knows what is the withholding rate in US considering the double taxation treaty between India and US?

        1. Is it the recent incident or 9 yrs old ?

          1. Babua Majumdar says:

            It’s a recent incident. The IRS says the 25% tax deducted in US is not enough, they want 35%.

            1. I have no idea about the recent developments in this

    2. Paddu says:

      I hope you still have a bank account in the U.S. File an income tax return claiming the refund amount with the IRS. (Probably you may need some U.S. auditor to help you with this. Hopefully your company HR is friendly enough to offer this assistance.)

      [My colleague got E*Trade selling his/her shares to cover his/her Indian taxes which our company gets from E*Trade & pays CBDT India. For this sale, E*Trade further withheld U.S. taxes by making his/her account balance negative, and thus reducing the amount he/she got the next time he/she sold shares. And he/she didn’t get much help in filing the U.S. tax return, and he/she doesn’t even have a U.S. bank account, so he/she just decided to forfeit the money. :-(]

  45. Jayant says:

    Very crisp information and lucidly explained. Thank you Manish.

    1. Thanks Jayant 🙂

  46. dc agrawal says:

    Mansh ,u have given excellent information for corporate employee.but I have some query.
    our company gives us ESOP and our company also deduct tax at the time of exercise(purchase the share).
    Tax deduction is applicable :-
    exercise day Market rate –ESOP rate=profit amount*30%.
    my question?
    1.any tax applicable now?
    2.If any sell after 1 year of same share any tax applicable?

    1. DC

      What they are deducting must be TDS , so in a way you are giving the tax .. but the point is if you really have to pay the tax @30% , are you in 30% tax bracket ? If no , then you are eligible for tax refund for the excess amount . Talk to your CA on this

      1. Vineet says:


        With abolishment of FBT, employers have to deduct perquisite tax at the rate of current tax slab. Since employer knows tax slab of employee it should get deducted at correct rate however due to other income/deduction it may be incorrect and needs to be corrected in returns.

        1. Thanks for that info 🙂

  47. Arun says:

    This is what happens where I work (MNC)

    RSU – At time of vesting, the value is added as to your income as “perquisite”. For example, let’s say you received 100 RSUs for 4 years with 25% vesting each year. so each year 25 RSUs vest. So 25 X stock price X dollar value is added to your income. Now its up to you when you sell those RSUs and when you sell if you make a gain or loss. For gain, we need to declare this separately while filing returns. What about this when we make a loss? Can we carry the loss forward and offset it or get a refund?

    ESPP – Similar to RSU. The 15% profit is added to your income as “perquisite”.

    ESOP – At the time of vesting, nothing is added to your income. But when you sell, the profit is added to your income and taxed as “perquisite”. So there is no separate tax implication.

    1. Yes , for RSU , you can carry it for next 8 yrs just like normal equity sales

      For ESPP , if the tax is being deducted by company itself, then they are depositing it with govt as TDS anywyas , you dont need to pay it seperatly !

      1. manyam says:

        For ESPP taxation of MNC US companies. May be depends on company, I don’t think TDS will apply here. Suppose 15% is the discount given by employer, that equivalent India converted INR are taxable income for that financial year in India. During selling time, the capital gain is not taxable in india, but taxable in US (will remit after deduction on gain).

        1. If the amount is receieved in India, then why will it not be taxable in India ?

          1. manyam says:

            due to double tax avoidance agreement with US. Source of income generated in US not in India.

            1. Paddu says:

              U.S.-India DTAA provides for taxation in the country of residence instead of the country of income generation. Obviously there is no distinction on whether it was stock options/ESPP/RSU in the DTAA.

            2. Paddu says:

              If one’s U.S. broker is deducting U.S. tax on capital gains, it means they don’t have a valid W-8BEN certification. This is the form where one declares that he/she is an Indian living in India and the income is not connected to any trade or business in the U.S. One will have to get this recertified ASAP and try to see if previous tax withheld in the U.S. can be refunded by filing returns with the IRS (which I heard is difficult without a U.S. bank account).

      2. Neeraj Sharma says:

        This is very good article and i have understood the calculation for short term and long term gain as well.

        But When we sell RSUs and for gain, we need to declare this separately while filing returns, but which ITR form need to be filled ….ITR-1 or ITR-2 ??? this is the main question ..i am not seeing any option in both of these form where we can enter RSU details or short term gain details particular for RSU…

        1. Mukul says:

          Hi Neeraj,

          Did u get an answer to your question? I have the same query but no luck on the net.

          “But When we sell RSUs and for gain, we need to declare this separately while filing returns, but which ITR form need to be filled ….ITR-1 or ITR-2 ??? this is the main question ..i am not seeing any option in both of these form where we can enter RSU details or short term gain details particular for RSU…”


    2. Paddu says:

      So for ESOP you are doing what is called “same day sale” where the exercise and sale happens on the same day (usually E*Trade does the exercises at the end of the day of sale). Some companies give other options, like using your cash to exercise, or sell a portion of the shares to exercise all the stock options. In that case when you sell the shares separately, you have to pay taxes on the capital gains.

      In my company since they use a proper merchant banker evaluation to tax ESOP, the “fair market value” they calculate tax on is different from the sale price. Also there is a $20 E*Trade commission. So there is a separate capital gain/loss involved and usually we end up claiming ~$20 as loss.

  48. Sravan says:

    Hi Manish,

    Can you please clarify me regarding Tax on Long Term Capital Gains?

    My employer gave me 100 shares(listed in NASDAQ) in Jan 2008 and 25% can be vested for each year till Jan 2012.

    On Dec 2011, I have sold the 75% of the shares that can be vested.

    can you please tell how the taxation will work?

    Is it LTCP on 75% of shares
    LTCP on 50% and STCP on 25% (since jan 2011 to dec 2011 is less than a year)?


    1. Paddu says:

      Are they RSUs or stock options? If they are stock options and you exercised the options only when you sold in 2011, then you never held shares so all are STCG (what is STCP?).

      If they are RSUs, then you should have held them for more than twelve months to claim LTCG, i.e. date of sale minus date of crediting in account (which could be a few days after vest) > twelve months.

    2. Yes, its the second option .. LTCG only on 50% part as they are more than a year old and rest will be STCG , meet your CA to make sure he computes and files the returns properly

      1. Sravan says:

        Is it regardless of ESOP or RSU’s?

        As per Paddu’s reply,
        >>>If they are stock options and you exercised the options only when you sold in 2011, then you never held shares so all are STCG

        Then this implies, whenever i exercise Options, amount will be taxed as STCG. Please correct me if i misunderstood.

        I would like tell a situation, where my company grants me options in Jan 2008 (Grant date), with vesting condition of 25% every year (vesting periods) and lets say i sold the 75 % (jan2009, 10&2011) Options in Dec 2011 (Sell date).

        Can you please explain how the tax will be calculated on amount i get in Dec 2011. (in this case i can exercise 50% of Options are held for more than a year and 25% are held for less than a year)

        1. Siva says:

          Hi Sravan,
          For options, generally the following two things are done together (for ESOPs).
          1. the exercising the options (actually buying the shares at option price)
          2. selling are done
          If you have done this together, then everything is STCG.

          If you are just exercising the option (only buying the shares), then you need to pay tax on (market price – option price). This would be added to your taxable income.

        2. Paddu says:

          You have said that you have only held the options for > a year. But you aren’t selling options. You are exercising your option of buying a share at a discount, but then you are selling immediately, so you have not held the share at all!

          Some companies allow paying cash to exercise options. In that case you get whole shares on exercise. These shares can be sold > a year later for LTCG. [But in many cases the tax saved on STCG-LTCG may not justify the upfront payment of cash to convert options to shares.]

          Some companies allow “sell-to-cover” where all options are exercised but only some of the shares are sold. This is usually done when someone is leaving the company or the options are expiring. In this case for the part where options are converted to shares & held, they can be sold after > a year to claim LTCG.

  49. smith says:

    Good article. Explained in simple manner and easy to understand.

  50. Rahul Vasanth says:

    Thanks for the article! It is quite useful.

    Regarding long term capital gains on RSU sell, how do we calculate 20% with indexation. Can you provide an example calculation. Also, how should one get the dollar conversion rate for the computations (my shares were in US eTrade).


    1. Paddu says:

      Since you mention U.S. shares I will assume there is no ‘10% without indexation or 20% with indexation’ option, as that is only for stocks listed in Indian stock exchanges.

      For example, in our company we got RSUs in Nov 2006 when the market price was $22.35 and the shares got sold for $45 in May 2011. Assume someone got 10 shares in Nov 2006, and totally 100 shares got sold in May 2011 for which a commission of $20 was charged by E*Trade.

      Full consideration (for the above 10 shares only) = $45 * 10 = $450 = Rs. 450 * 44.01 = Rs. 19804.5
      Cost of acquisition = $22.35 * 10 = $223.5
      Indexed cost of acquisition = $223.5 * 785/519 = $338.0491 = Rs. 338.0491 * 44.9 = Rs. 15178.406
      Expenditure on transfer (for the above 10 shares only) = $20 * 10/100 = $2 = Rs. 2 * 44.01 = Rs. 88.02
      Long term capital gain = Rs. 19804.5 – Rs. (15178.406 + 88.02) = Rs. 4538.074.

      Other input values:
      (i) Exchange rate for full consideration and expenditure on transfer = Rs. 44.01/$

      Here one has to use the “telegraphic transfer buying rate” quoted by the State Bank of India as of the close of business in the month before the month of the transaction, so in this case 29 April 2011 (30 was a Saturday). However this is difficult to get, and we used the TT rate from Indian Bank from instead. Of late, The Hindu has stopped publishing this table online and I am taking exchange rates from the paper version.

      The Hindu Business Line publishes some SBI TT buying rate online: but it looks like these rates are only applicable for bulk transactions or something like that, since the rates published here is quite different from the Indian Bank rate, and also my new company has started internally sharing SBI TT rates for RSU vest months, and they also do not match the Hindu Business Line rates.

      (ii) Indexation for 2006-7->2011-12 = 785/519

      The values for 2006-7 and 2011-12 (or for any other financial year for that matter) can be got by googling “cost inflation index”, and one simply has to take the ratio of sale date to the acquistion date (i.e. vest date for RSUs).

      (iii) Exchange rate for cost of acquisition = Rs. 44.9/$

      This is simply the value my company took for that RSU vest. My new company takes SBI TT exchange rate as of the close of business the month before the month of vest, and shares the exchange rates internally.

      1. Rahul Vasanth says:

        Thanks Paddu for the detailed information and calculations!!

        One more question – what is the criteria for ‘long-term’ in this case? 1 year?

        1. Rahul Vasanth says:

          Sorry, I think that is clear from the original article.

      2. Rahul Vasanth says:

        You computed the Long-Term capital gain to be Rs. 4538.074 in the above example. What would be the tax on it? And, what would be the % of tax in the short-term case? Thanks.

        1. Paddu says:

          As you had mentioned long-term capital gains tax is 20%. But remember to add 3% education cess so it totally becomes 20.6%. In case of short-term the taxation is like for ordinary income, i.e. depends on your tax slab.

          The IT Act defines short-term as ‘not more than twelve months’ for the case of shares, and securities listed in recognised stock exchanges or mutual fund units. Otherwise it is ‘not more than thirty-six months’. If it is not short-term, it is long-term.

      3. praveen says:

        Hi Paddu,

        You seem to have applied indexation benefit while calculating CG.

        I thought indexation benefit is applicable only for shares traded in Indian Stock exchange. It does not apply to shares traded in foreign exchange.

        Are you sure indexation benefit can be applied in this case?


        1. Paddu says:

          I don’t see anything in the IT Act 1961 that makes indexation specific to “shares traded in Indian Stock exchange”. Only bonds & debentures other than “capital-indexed bonds” are excluded, and Indian shares & debentures excluded in the case of an NRI. In any case I am not a lawyer or a chartered accountant, so I cannot be so sure. 🙂


          “Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by …

          Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted:

          Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government :”

    2. In case of RSU , its very simple … You do not have any Purchase Price , so its Rs 0 , because you got it for FREE . Now when you sell it you will get some amount for yourself. Lets say that after 5 yrs , you sold it and your total income was Rs 1 lac as example .

      Now this whole 1 lac is your profit , here there is no case of indexation because your cost price itself was Rs 0 . So you have to pay tax on all Rs 1 lac, however if its RSU of a public listed Indian company , your tax will be NIL , because of long term capital gains, but if its a out side india listed company , then 20% of 1 lac , which is Rs 20,000


      1. Siva says:

        Hi Manish,
        For the last few years, it is responsibility of the employer to deduct TDS on RSUs (when vesting). The company cuts tax. So the market price on the vesting day becomes some sort of buying price.
        So when one sells it, he needs to pay tax on (selling price – market prices on vesting).


        1. Thanks for that info Siva .

          1. Rahul Vasanth says:

            Thanks Paddu for the detailed information and calculations!!

            One more question – what is the criteria for ‘long-term’ in this case? 1 year?

        2. Paddu says:

          And a few years before the employer used to deduct FBT on RSUs on vesting. So again market price on vesting day “becomes buying price”. Before that there was a catch-all phrase saying “sweat equities or shares given at a discount to market price are perk”, except in case of ESOP plans approved by Commissioner of Income Tax or some such. My example of 2006 was from this time, as my company never seemed to be bothered to get IT approval for ESOP/RSU/ESPP plans.

          So only in the rare case of an RSU plan from pre-FBT-on-stock-based-compensation era which was approved by the appropriate IT officials, does Manish’s calculation hold good.

  51. NAGAMOHAN says:

    Dear Manish,
    In case of an ESOP under case-2 explained above because of the price reduction the employee will not exercise his option to buy the shares.
    However will the company provide the employee with an equivelent amount of Rs.100000(i.e Rs 200 for 500 stocks) or the employee has to forget the money since this will be included in his CTC package.
    I hope the details furnished by you gives a great Insight on the Subject.



    1. Paddu says:

      The company does not have any obligation to compensate the employee if the share price goes down. Actually the idea is that if the company gives shares to employees, the employees would be motivated to work in such a way as to maximise returns both for them as well as for the shareholders (maximising returns for the shareholders is the sole aim of any company). If the plan didn’t work well, then tough luck.

      If the employee doesn’t feel satisfied with the compensation, and is some bigshot, he/she could probably get the company to compensate him/her in some way or he/she could threaten to resign. 😛

  52. Suneet Jindal says:

    Thanks for the information Manish. One doubt, how will we know that etrade has already taxed us? In my case,they charged me USD45 each for two different transactions made while selling my ESPP/RSU. I think it includes wire-transfer charges also. How do i know if i already paid STT in US itself ?
    Plus,where can i get the indexation chart for long-term capital gain for the same?
    Thanks in advance.

    1. Paddu says:

      There’s no STT applicable except in Indian stock exchanges and mutual fund houses and the like. E*Trade usually charges $20 for stock compensation sales + $15 for wiring the funds to India at the time of sale. If your company does withhold tax through E*Trade, you would have around 20.6% or 30.9% deducted from the sale proceeds and this would be visible in E*Trade under ‘View Orders’ or some such menu. If it is just $45 I doubt any tax was withheld there.

    2. You will have to check with them only . However its a known fact that they deduct it themselves (like TDS in India) . For long term indexation numbers , refer to this article

  53. Suhas says:

    I have a few questions?
    My company gives ESPP and its listed in USA
    1) Is there any vesting period in ESPP? I mean once you have been bought the shares after 6 months, you can sell it anytime correct?
    2)In my company’s ESPP document I keep seeing something called “US Qualifying date” which according to the document says “Shares sold on or after this date qualify for IRS preferential tax treatment”, Can you explain what this is? Since the stock is in foreign country(USA) , I staying in India can just ignore this?
    3) My company adds something called as “ESPP taxable perk”(potential gain) as income, when stocks are purchased after 6 months and according tax is deducted at my tax slab, so should i still add STCG or LTCG as and when i sell the stock?

    1. Paddu says:

      I assume you get a standard ESPP offer from your company under IRS section 423 []

      1) In the general case of stock options, you have a stock option grant, then the options vest, then you can purchase shares in lieu of the options by exercising the options, and then you can sell the shares at any time. In case of ESPP the 6 months period is the vesting period, and the stocks vest & are immediately purchased at the end of the vesting period.

      2) That is for U.S. preferential tax treatment. India doesn’t have any preferential tax treatment for holding ESPP shares for long, other than the regular short-term/long-term distinction of capital gains.

      3) Suppose the shares were purchased at price P when the market price was M. Later on you can sell the shares at price S with broker commissions, etc. of C. Your company deducts tax on M-P at the time of purchase. Later when you sell you have to declare a capital gain of S-M-C, as though you purchased the shares at M instead of P, since M-P has already been taxed. This capital gain would be short-term/long-term depending on whether you held the shares for at most twelve months, or more.

      1. Paddu says:

        A slight detail was missed. In case of unlisted companies as well as foreign shares, Indian tax laws require the company to get a category I merchant banker to evaluate the company from time to time and determine the “fair market value”, so the ‘M’ mentioned above may not be the same as the market price in the stock exchange on the date of vest/purchase.

        Some small companies don’t go through the hassles of the merchant banker and just use U.S. stock exchange price as M, but this is contrary to the law.

      2. Paddu says:

        A slight detail was missed. In case of unlisted companies as well as foreign shares, Indian tax laws require the company to get a category I merchant banker to evaluate the company from time to time and determine the “fair market value”, so the ‘M’ mentioned above may not be the same as the market price in the stock exchange on the date of vest/purchase.

        Some small companies don’t go through the hassles of the merchant banker and just use U.S. stock exchange price as M, but this is contrary to the rules.

        1. manyam says:

          Hi Paddu,

          Why Short Term / Long Term Capital gains applied for US based stocks in india? Is there any specific guidance or document for that?

          My understanding:

          1) Any income generated out side India are not taxable in India, if we have double tax avoidance agreement with that country. We have such agreement with US.

          2) Non Indian RSU – Vested yearly manner to employees by MNC employers in India. Are taxable as income based on equivalent INR value at vesting date. But capital gains will be paid at income generating country (like US), no need pay any taxes on these gains due to selling. Also same applicable for earned dividends on those RSU.

          3) ESPP (Non Indian Stocks) :- ESPP contributions are already deducted from payslips, but if employer gives 15% discount that will be treated as income to employee and need to declare in excercised year (stock allocated year). Dividends and capital gains on selling ESPP stocks again not taxable in India, since that income did not generated in India.

          If my views are wrong about non indian stocks of RSU/ESPP, please provide any reference links for supporting for pay capital gains taxable in India even that is generated out side of India.

          1. Paddu says:

            The agreement provides for taxation in the country of residence instead of the country where the income is generated. Thus you can avoid U.S. taxes and pay the taxes in India. There ain’t no such thing as free lunch (TANSTAFL), they only make it easier for us to pay taxes/file returns where we live instead of in the other country.

            Specifically the U.S.-India taxation agreement provides for 25% withholding of tax on dividends. I found this after I found E*Trade withholding 25% of my dividend income as taxes. The rest (e.g. 5.9% if you are in 30.9% bracket) is tax to be paid in India. Basically you calculate tax normally, and then the 25% qualifies as rebate under I.T Act Section 90 so you end up paying only the 5.9%.

            There are enough references on the ‘net about foreign income being taxed in India. Haven’t you heard of the Vodafone case? 🙂

            If you are interested in just the case of income to an Indian resident arising in the U.S., search the ‘net for ‘India USA double taxation avoidance agreement’ and read the relevant provisions therein.

  54. Muthu Krishnan V says:

    i had sold some RSUs listed in france. My chartered accountant said that it will be added to income and taxed at normal rate. He did not know about the 20% with indexation thing.

    I should check if I can revise the return and apply for refund.

    1. Paddu says:

      Did you hold the shares for more than twelve months after they vested, and if so, did you make this clear to your CA? Your CA would have accounted for them assuming short term capital gains.

      1. Muthu Krishnan V says:

        the RSUs were with me from 2006 and sold in 2011. He was not sure of the rules and hence accounted for max.

        1. Paddu says:

          If the return was for F.Y. 2010-11, I think you may have only 5 more days to be able to file a revised return, but if the return was for F.Y. 2011-12, I think you have time till 31 Mar 2013.

          1. Muthu Krishnan V says:

            checked my accounts. It was deposited on 16-may-2011 which is FY 11-12 (just last FY). I should be able to revise it. will shoot out an email to my CA right away.

            1. Paddu says:

              Actually… time of sale and not time of deposit matters. I think I read this somewhere in the income tax website, probably in some judgment or something. Have no link. 🙁

            2. Muthu Krishnan V says:

              i had sold a week before the deposit date. It takes a few days for money to be credited to our account. yes, date of sale and purchase only will matter not the dates of money changing hands.

            3. Muthu Krishnan V says:

              finally got the cheque in my hand today. There was a goof-up in the bank account details in the revised return and hence bounced in november. after re-applying for refund finally received the cheque today. Have to deposit it in the bank tomorrow. Got the money only due to JagoInvestor. Long live JI.

            4. Great to hear that Muthu !

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