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RSU employees face two distinct tax events: (1) Perquisite tax at vesting — RSU value at vesting date is taxed as salary income, and (2) Capital gains tax when shares are subsequently sold. Each is governed by different rules, and regime choice affects both.
How RSU Taxation Works Under Income-tax Act 2025
RSUs (Restricted Stock Units) granted by your employer (whether Indian or foreign listed company) are taxed in two stages:
| Event | What Gets Taxed | How | TDS? |
|---|---|---|---|
| Vesting of RSUs | Fair Market Value (FMV) of shares on vesting date minus exercise price (usually zero for RSUs) | As perquisite under "Salary" income | Yes — employer deducts TDS on perquisite value |
| Sale of vested shares | Sale price minus FMV at vesting (your cost of acquisition) | As Capital Gains (STCG or LTCG) | Broker deducts STT; you pay tax in advance tax / ITR |
Cost of Acquisition for Capital Gains: When you sell RSUs after vesting, your cost is the FMV at vesting date (not zero). You were already taxed on the FMV at vesting. The capital gain is calculated on appreciation above that FMV. This is an important point many RSU holders miss, leading to double-counting of income.
DPIIT Start-up Benefit: Deferred Perquisite Tax
For employees of DPIIT-recognized startups (eligible category I Category I AIF-funded or DPIIT-notified), there is a special provision under Income-tax Act 2025 allowing deferral of perquisite tax on ESOPs/RSUs:
- Perquisite tax deferred to the earliest of: (a) 5 years from vesting, (b) Date of sale of shares, (c) Date employee leaves the company
- This doesn't eliminate the tax — it defers TDS liability, helping employees who don't want to sell shares immediately to fund the TDS
- Only applicable for DPIIT-recognized startups — verify your employer's eligibility
Regime Impact on RSU Taxation
| Tax Element | Old Regime | New Regime | Key Difference |
|---|---|---|---|
| Perquisite at vesting | Added to salary, taxed at slab rate; deductions reduce taxable salary | Added to salary, taxed at new slab; no Chapter VI-A deductions | Marginal rate may differ; regime affects total taxable income |
| STCG on shares (held <24 months for unlisted; <12 months for listed) | 15% flat (listed equity); slab rate (unlisted) | 20% flat (listed equity); slab rate (unlisted) — Budget 2024 change | STCG on listed equity: 20% in both regimes from FY 2024-25 |
| LTCG on listed equity (held >12 months) | 12.5% above ₹1.25L exemption | 12.5% above ₹1.25L exemption | No regime difference for listed equity capital gains |
| LTCG on unlisted equity (held >24 months) | 12.5% without indexation (post-July 2024) | 12.5% without indexation | No regime difference |
Key Insight: Capital gains tax rates on RSU shares are the same in both regimes. The regime choice primarily affects the perquisite tax at vesting — specifically, which deductions can reduce the base taxable salary before the perquisite is added.
📋 Case Study — Arjun Nambiar, Senior Engineer at Funded Startup (Bengaluru)
Fixed salary ₹20L. RSUs vested: 1,000 shares × FMV ₹500 = ₹5L perquisite added to salary. Total salary income year: ₹25L. 80C ₹1.5L, NPS employer 10% of basic (₹8L basic) = ₹80K. 80D ₹25K. Pays rent ₹30K/month in Bengaluru (non-metro). Basic = ₹8L, HRA = ₹4L.
Old Regime
- Salary incl. RSU perquisite: ₹25,00,000
- HRA exempt: min(₹4L, 40%×₹8L=₹3.2L, ₹3.6L–₹80K=₹2.8L) = ₹2,80,000
- Std deduction: (₹50,000)
- NPS employer: (₹80,000)
- 80C: (₹1,50,000)
- 80D: (₹25,000)
- Taxable: ₹25L – ₹2.8L – ₹50K – ₹80K – ₹1.5L – ₹25K = ₹19,15,000
- Tax ≈ ₹3,64,500 + cess = ₹3,79,080
New Regime
- Salary incl. RSU perquisite: ₹25,00,000
- NPS employer: (₹80,000)
- Std deduction: (₹75,000)
- Taxable: ₹23,45,000
- Tax: nil+₹20K+₹40K+₹60K+₹80K+₹103.5K = ₹3,03,500
- Tax + cess = ₹3,15,640
✅ New regime saves Arjun ₹63,440/year — despite significant HRA in old regime, the RSU income inflates total salary and new regime's flat lower slabs are more efficient. RSU years are typically new-regime-favorable.
Filing Workflow for RSU Employees
| Step | Action Required | Form / Document |
|---|---|---|
| 1 | Collect Form 16 with RSU perquisite declared | Part B of Form 16 — perquisite under Section 17(2) |
| 2 | Get foreign equity broker statement (for US-listed RSUs) | E*Trade / Schwab / Fidelity: 1099-B equivalent + India cost basis |
| 3 | Reconcile AIS for foreign dividend, foreign income | Annual Information Statement on income tax portal |
| 4 | File ITR-2 (capital gains from equity) | ITR-2 — not ITR-1 |
| 5 | Report foreign assets in Schedule FA (if foreign RSUs) | Schedule FA — mandatory if equity in US/foreign company |
| 6 | Pay advance tax if capital gains + salary tax > ₹10,000 | Challan 280 online |
Foreign RSU Reporting — Schedule FA: If your RSUs are from a US-listed company (or any foreign company), you must report these shares in Schedule Foreign Assets (Schedule FA) in your ITR-2 every year — even before you sell. Failure to report can attract penalty up to ₹10 lakh per year under the Black Money Act, 2015.
✅ RSU Employee Regime + Filing Checklist
- RSU vesting = perquisite income added to salary; taxed at slab rate under chosen regime
- RSU sale = capital gains; LTCG 12.5% / STCG 20% for listed equity — same in both regimes
- New regime often better in RSU-vesting years: high income, fewer deductions typically available
- DPIIT startup employees: check deferral eligibility — employer must have valid DPIIT recognition certificate
- ITR-2 mandatory for RSU holders (not ITR-1) due to capital gains income
- Foreign RSUs: Schedule FA filing mandatory annually — even if not sold
- Advance tax due dates: 15 June, 15 September, 15 December, 15 March — don't miss if total tax > ₹10K
Frequently Asked Questions
My employer deducted TDS on RSU vesting. Do I still need to file advance tax? ▼
Employer TDS covers the perquisite component. If you sell RSU shares and make capital gains, that capital gains tax is NOT covered by employer TDS. You must self-assess and pay advance tax on capital gains by the quarterly due dates. If you miss advance tax, interest under Sections 234B and 234C applies.
What is the holding period to qualify for LTCG on RSU shares? ▼
For listed equity (Indian company listed on BSE/NSE): 12 months from vesting date. For unlisted equity (private Indian company or foreign company): 24 months. The holding period starts from the vesting date, not the grant date. Keep a record of exact vesting dates and FMV per vesting event.
Is the DPIIT RSU/ESOP tax deferral available for all startup employees? ▼
No. The deferral applies only to employees of startups that are: (a) DPIIT-recognized, (b) Incorporated not more than 10 years prior, (c) With turnover not exceeding ₹100 crore. If your startup doesn't have a current DPIIT recognition, the deferral doesn't apply and perquisite tax must be paid in the year of vesting.
Can I switch to old regime in a year when large RSUs vest? ▼
Yes — salaried employees without business income can choose regime at each ITR filing. In years with large RSU vesting (inflating total income), it's worth calculating both regimes. Generally, new regime wins in high-income RSU years unless you have substantial HRA + 80C + 80D deductions that together exceed ₹4–5 lakh.