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How to Declare RSU Shares in Schedule FA While Filing ITR

ITR RSU

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Declare RSU Shares in Schedule FA While Filing ITR

Enhancing Tax Transparency on Foreign Assets & Income – CRS & FATCA

  • The Common Reporting Standard and Foreign Account Tax Compliance Act are international frameworks designed to combat tax evasion by enabling the exchange of financial account information between countries. Through these mechanisms, India receives information about foreign bank accounts, investments, insurance policies, entities, and income earned abroad by Indian residents.
  • Basics of Purpose of Common Reporting Standard & Foreign Account The Tax Compliance Act is to promote tax transparency and curb tax evasion. Enable automatic exchange of financial information between tax authorities. Help the Income Tax Department identify undisclosed foreign assets and income.

Meaning of Restricted Stock Units (RSUs)

Restricted Stock Units are a type of equity-based compensation offered by employers, under which employees are entitled to receive company shares after fulfilling specified conditions, such as completing a certain period of employment or meeting performance-related goals. Unlike stock options, restricted stock units do not require employees to pay any purchase price to acquire the shares. Upon satisfying the vesting conditions, the Restricted Stock Units are converted into actual shares of the company, and ownership of those shares is transferred to the employee.

How Restricted Stock Units Work

RSUs generally follow four stages:

  1. Grant – The company awards a specified number of Restricted Stock Units to the employee and outlines the vesting conditions.
  2. Vesting – Employees earn ownership of the shares after meeting time-based, performance-based, or hybrid vesting requirements.
  3. Conversion into Shares – Upon vesting, Restricted Stock Units convert into actual shares that can be held or sold by the employee.
  4. Exit Event – In private companies, liquidity may arise through events such as an IPO, merger, or acquisition.

Types of Vesting

  • Time-Based Vesting: Shares vest over a specified period.
  • Performance-Based Vesting: Vesting depends on achieving defined business or individual goals.
  • Hybrid Vesting: Combines both time and performance conditions.

Single-Trigger vs Double-Trigger RSUs

  • Single-Trigger Restricted Stock Units: Vest upon meeting a single condition, usually continued employment for a specified period.
  • Double-Trigger Restricted Stock Units: Require both service-based vesting and a corporate event such as an IPO or acquisition before shares are delivered.

Benefits of RSUs

  • No purchase cost for employees.
  • Simple and easy to understand.
  • Provide direct ownership upon vesting.
  • Benefit from future share-price appreciation.
  • Less risk than stock options, which may become worthless.

Disadvantages of RSUs

  • Tax liability arises at vesting, even if shares are not sold.
  • Value depends on company performance.
  • Unvested RSUs may be forfeited upon leaving employment.
  • Private company RSUs may have liquidity restrictions.

ITR Filing and Taxation of RSUs (Restricted Stock Units)

Which ITR form should restricted stock unit holders use?

  • ITR-2 (Most Common) : ITR-2 is the correct form for salaried individuals holding restricted stock units because it covers salary income, capital gains, foreign assets, and foreign income. In this case ITR-1 (Sahaj) cannot be used.
  • A taxpayer cannot file ITR-1 if they Hold foreign assets (including vested restricted stock units) and earn foreign income. Have capital gains Once restricted stock units vest, they become shares of a foreign company and therefore constitute a foreign asset.
  • ITR-3 : Use ITR-3 only if You have restricted stock units & Business or professional income (freelancing, consultancy, business, etc.)

Important income tax return Form Selection

  • ITR-1 & ITR-4 cannot be used for reporting foreign assets because they do not contain Schedule Foreign Assets.
  • Taxpayers having foreign assets or foreign income should file another applicable income tax return form containing Schedule Foreign Assets.

Opportunity to File Revised Return

  • If foreign assets or income were omitted in the original return, taxpayers can rectify the mistake by filing a revised return.
  • For AY 2025-26, the revised return can be filed up to 31 December 2025.

Tax Treatment Before Restricted Stock Units Vesting:

No Tax Liability: Unvested restricted stock units are not owned by the employee. Are merely a future promise by the employer, do not require reporting in an income tax return, and do not require reporting in Schedule Foreign Assets. Taxation starts only on the vesting date.

Tax on Vesting of Restricted Stock Units:

  • When restricted stock units vest: Taxable as salary income, then the fair market value of the shares on the vesting date is treated as a perquisite under “income from salary.”
  • Calculation: No. of Shares × Fair Market Value on Vesting Date. The value Appears in Form 16, Is subject to TDS by the employer, Is reported under Salary Income in ITR-2

Currency Conversion for Restricted Stock Units Perquisite

For taxation of restricted stock units vesting, use the SBI Telegraphic Transfer Buying Rate.

Applicable Date: Use the telegraphic transfer buying rate of the last day of the month preceding the month of vesting. For Example

  • Restricted stock units vested: 10 September 2025
  • Telegraphic Transfer Buying Rate applicable: 31 August 2025

Cost of Acquisition of Restricted Stock Units

  • The cost of acquisition is Fair Market Value on the vesting date (already taxed as salary) This prevents double taxation. The amount taxed as salary becomes the purchase cost for future capital gains calculation.

After Vesting – Shares Become Normal Stocks

  • After vesting: Shares are treated like ordinary foreign shares. Holding the shares does not attract tax, and an increase or decrease in value is not taxable until sale. No tax is payable merely because Share price rises, share price falls and shares continue to be held

Capital Gains Tax on Sale of Restricted Stock Units

  • When vested shares are sold: Tax Head Capital Gains, not Salary Income (i.e., Cost of Acquisition: Cost = Fair Market Value taxed at vesting.
  • Sale Value Conversion: Convert sale proceeds into INR using SBI Telegraphic Transfer Buying Rate of the last day of month preceding the month of sale
  • Holding Period Rules: Short-Term Capital Gain: Holding period: Up to 24 months in this case. The tax rate will be applicable to the income tax slab rate.

Who Needs to Report Restricted Stock Units in Schedule Foreign Assets?

  • Schedule of Foreign Assets is mandatory only for taxpayers who are residents & ordinary residents in India during the relevant financial year.
  • Not required for Non-Residents or Residents but Not Ordinarily Resident
  • Important: Schedule Foreign Assets is based on the calendar year (January 1 to December 31) and not the Indian financial year (April 1 to March 31).
  • For AY 2026-27, Schedule Foreign Assets will generally capture foreign assets held from 01.01.2025 to 31.12.2025.

Which RSUs Need to be Reported?

The taxability of restricted stock units in India primarily depends on an individual’s residential status under the Income-tax Act.

  • Resident and Ordinarily Resident taxpayers are generally liable to pay tax in India on their global income, including RSUs granted by foreign employers, foreign shares, dividends, and capital gains arising from the sale of such shares.
  • Non-residents and residents but not ordinarily resident individuals are generally not taxable in India on RSUs relating to employment exercised and shares held or sold outside India, subject to applicable tax provisions.
  • Since RSU taxation can involve multiple jurisdictions, foreign tax credits, and disclosure requirements, taxpayers should evaluate their residential status carefully and seek professional tax advice where necessary.
  • Report: Restricted Stock Units that have vested and are held as shares, Shares vested in earlier years but still held, Shares vested and sold during the calendar year.
  • Do NOT report: Unvested restricted stock units and future grants not yet vested. The reporting trigger is the vesting date, not the grant date.

Schedule FA (Foreign Assets)

Declare RSU Shares in Schedule FA While Filing ITR

  • Resident and Ordinarily Resident (ROR) taxpayers holding foreign assets are required to file Schedule Foreign Assets. Schedule FA is required to be disclosed for vested restricted stock units held in foreign companies. Taxpayers do not need to report unvested restricted stock units.
  • Scheduled foreign assets follow the calendar year (1 January to 31 December) and not the financial year (1 April to 31 March): For AY 2026-27: Schedule Foreign Assets covers 1 January 2025 to 31 December 2025

Long-Term Capital Gain 

  • Holding period: More than 24 months
  • Tax Rate: 12.5% (without indexation)
  • Example of Capital Gains
  • Vesting: 50 Google shares vested
  • Perquisite value taxed as salary: INR 895,700
  • Sale Shares sold later for: INR 1,333,000
  • Capital Gain INR 1,333,000
  • Less: INR 895,700
  • Capital Gain = INR 4,37,300
  • Since the holding period is less than 24 months, short-term capital gain is taxable at slab rates and reported in Schedule capital gain of ITR-2.

Multiple Vesting Tranches

Each vesting lot is treated separately. Every tranche has a separate vesting date, separate cost of acquisition, and separate 24-month holding period. Example:

  • June 2025 vesting → separate calculation
  • November 2025 vesting → separate calculation. Cannot be combined for holding-period purposes.

Information Available to the Tax Dept. India receives details such as:

  • Foreign bank account numbers and balances.
  • Interest, dividend, and investment income.
  • Details of account holders, beneficial owners, and controlling persons.
  • Information related to foreign entities, trusts, insurance policies, and investments.

Disclosure Requirement Under Indian Tax Laws

Indian residents must disclose:

  • Foreign assets in the schedule of foreign assets.
  • Income tax to be a tax on foreign source income in Schedule Foreign Source Income.
  • Foreign tax relief claims in Schedule TR along with Income Tax Form 67.

Filing of Schedules in income tax return

Schedule Foreign-Source Income

  • Report foreign income and taxes paid abroad.
  • Mention country code, TIN, and Double Taxation Avoidance Agreement details.

Income tax Schedule TR (Tax Relief)

  • Summarizes foreign tax relief claimed.
  • References taxes reported in Schedule Foreign Source Income.

Schedule Foreign Assets

  • Mandatory for Indian residents holding foreign assets. Covers:
    • Foreign bank accounts.
    • Custodial and depository accounts.
    • Foreign shares and investments.
    • Foreign-insurance/annuity contracts.
    • Foreignentities and trusts.
    • Foreign immovable property.
    • Other foreign assets and income.

Schedule Foreign Assets: Required basic details are mention here under 

      • Foreign Shares, RSUs and ESOPs : For foreign company shares, vested RSUs, and ESOPs, taxpayers may generally require Company name, Country of incorporation, Nature of ownership (beneficial owner, legal owner, etc.), Date of acquisition or vesting, Cost of acquisition, Peak value during the reporting period, Closing value at the end of the reporting period and Income earned, such as dividends or sale proceeds
      • Foreign Brokerage Accounts: For overseas brokerage accounts such as Fidelity, E*Trade, Schwab, or Morgan Stanley, the following details are commonly required: broker name, Country, Account number, Account opening date, Peak balance during the reporting period, and Closing balance
      • Foreign Bank Accounts: Taxpayers holding foreign bank accounts should generally maintain the bank name, Country, Account number, Date of opening, Peak balance during the reporting period and Closing balance
      • Foreign Mutual Funds and ETFs: For investments in overseas mutual funds and ETFs, taxpayers may need Fund name, Country, Units held, Acquisition value, peak value, and Closing value
      • Foreign Immovable Property: For foreign real estate and property holdings, relevant details may include Nature of property, Country where situated, Date of acquisition, Cost of acquisition, income generated (rent, etc.) and Sale proceeds, where applicable

Two Tables Must Be Reported

  • Most taxpayers incorrectly disclose only the shares in Table A3.
  • For restricted stock units held through a foreign broker, both tables are mandatory:
  • Table A2 – Custodial Account. This report is on the foreign brokerage account where restricted stock unit shares are held. Examples: E*Trade, Fidelity, Morgan Stanley, and Schwab.
  • FA Table A3 – Foreign Equity Interest. This reports on the actual restricted stock unit shares held in the foreign company.

Step by Step of Filing of Schedules FA  in ITR

Step 1 – Reporting in Table A2 (Foreign Custodial Account). The taxpayer has to Enter

  • Basic Details:
  • Country: United States
  • Broker Name: Fidelity Brokerage Services LLC, E*Trade Financial Services Inc., Morgan Stanley, Schwab, etc.
  • Broker Address
  • Account Number
  • Account Status: Active, Closed
  • Account Opening Date: Mention the date on which the brokerage account was created.
  • Financial Details
  • Report: Initial Value: Value as of the beginning of the calendar year.
  • Peak Balance: Highest value during the year.
  • Closing Balance: Value as on 31 December.
  • Income: Interest earned (usually Nil).

Step 2 – Foreign Assets Reporting in Table A3 (Foreign Equity/Debt Interest)

  • Each company gets one separate entry. Example: If you hold Microsoft restricted stock units or Google restricted stock units. Details required for restricted stock units or other foreign assets are mentioned here under:
  • Country, United States, Company Name Use legal names like Microsoft Corporation and Alphabet Inc. Not like Google
  • The company address must be the registered office address.
  • ISIN Number: For example, Microsoft: US5949181045 & alphabet: US02079K3059
  • Available from Broker statement, Company Investor Relations site
  • Nature of Interest: Select Beneficial Owner because vested shares belong to the employee.
  • Date of Acquisition: Usually the date of first vesting or 01 January if shares were already held before the start of the reporting year.
  • Initial Value: Value of shares at beginning of calendar year. Formula: No of Shares × Share Price × State Bank of India Telegraphic Transfer Buying Rate
  • Peak Value: Highest value of shares during the year. Formula: Highest No. of Shares × Market Price × State Bank of India Telegraphic Transfer Buying Rate
  • Closing Value: Value on 31 December. Formula: Shares held on 31 Dec × Closing Market Price × State Bank of India Telegraphic Transfer Buying Rate
  • If all shares were sold: Closing Value = Zero
  • Income-Derived Mention: Dividends received in USD and INR.
  • Sale Proceeds: If shares were sold, disclose the total sale value. Received during the calendar year.

Step 3 – Reporting Dividend Income:

  • Dividends received from foreign shares must be reported: Schedule Foreign Source Income, Foreign Source Income, and Schedule TR. If a foreign tax credit is claimed.

Step 4 – Foreign Tax Credit:

  • Where US tax is deducted on restricted stock unit income and dividends. A taxpayer may claim a foreign tax credit in India. Requirements: income tax Form 67, Schedule Foreign Source Income, Schedule TR
  • Foreign Dividend on Restricted Stock Units: Dividends received from foreign shares are taxable in India under Income from Other Sources. Taxed at: Applicable Slab Rate
  • Foreign Tax Credit: If foreign tax was deducted on dividends or restricted stock units income. A taxpayer may claim a credit in India by filing Form 67, Schedule Foreign Source Income, and Schedule TR. This avoids double taxation under Double Taxation Avoidance Agreement provisions.

How to Avoid Double Taxation on RSUs?

    • For a Resident and Ordinarily Resident (ROR) taxpayer, global income, including RSU income earned abroad, is taxable in India. If the same income is taxed in a foreign country, the taxpayer can claim Foreign Tax Credit (FTC) in India under the applicable DTAA to avoid double taxation.
    • Employees who work across multiple countries may face a situation where the same RSU income becomes taxable in more than one country. This is known as double taxation. To mitigate double taxation:
      • Check whether India has a Double Taxation Avoidance Agreement with the foreign country.
      • Claim Foreign Tax Credit in India for taxes already paid overseas, subject to prescribed conditions.
      • File Form 67 and report the relevant details in Schedule Foreign Source Income and Schedule TR (Tax Relief) while filing the Income Tax Return.
      • Maintain supporting documents such as foreign tax withholding statements, broker reports, employer tax records, and foreign tax payment evidence.
      • FTC allows credit for foreign taxes paid on RSU perquisites, dividends, or other foreign income, reducing the Indian tax liability to the extent permitted under the tax treaty and Indian tax.

Step 5 – INR Conversion:

  • Foreign balances and investments must be converted into Indian Rupees using the State Bank of India Telegraphic Transfer Buying Rate applicable on the relevant date. All values must be converted using the State Bank of India Telegraphic Transfer Buying Rate. Use the telegraphic transfer buying rate on the following:
Particular Relevant Date
Initial Value Beginning of period
Peak Value Date of peak balance
Closing Value 31 December
Sale Proceeds Date of sale
Dividend Date of receipt
  • Keynote: 
    • Use only the State Bank of India Telegraphic Transfer Buying Rate for converting foreign currency values into Indian Rupees. Do not use Google exchange rates, credit card conversion rates, or exchange rates reflected in bank statements, as these are not prescribed for income-tax reporting purposes.
    • Non-disclosure of foreign assets or foreign-source income can lead to scrutiny, reassessment proceedings, tax demands, interest, and significant penalties. In serious cases, taxpayers may also face prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Therefore, accurate and complete disclosure of foreign assets and income in the income tax return is essential for maintaining tax compliance and avoiding adverse consequences.

Benefits of Proper Disclosure

  • Taxpayer must ensure tax compliance and transparency.
  • Reduces risk of scrutiny, penalties, and legal action.
  • The taxpayer must enable claiming foreign tax credits and double taxation avoidance agreement benefits.
  • Prevents double taxation.
  • Taxpayer must support good governance and responsible tax conduct.

Common Mistakes to Avoid and Solutions for Those Errors

  • Filling only A3: Both A2 and A3 are required.
  • Reporting unvested restricted stock units: Only vested shares should be reported.
  • Using Financial Year Data: Schedule FA uses
  • Not Reporting Sold Shares: Even if all shares are sold, they must be disclosed if held during the calendar year.
  • Wrong Exchange Rate: Only the State Bank of India Telegraphic Transfer Buying Rate should be used.
  • Missing Dividend Reporting: Foreign dividends must be disclosed separately.

Important Consequences of Non-Disclosure of FA

  • Filing ITR-1 despite holding foreign restricted stock units may result in non-filing of Schedule FA, violation of foreign asset disclosure requirements, and a penalty up to INR 10 lakh under the Black Money Act. Failure to disclose foreign assets may attract provisions of the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, including the following:
    • Penalty up to INR 10 lakh per year in specified cases.
    • Scrutiny and assessment proceedings.
    • Prosecution in serious cases.

Because international tax rules vary based on individual circumstances, residency status, source of income, and treaty provisions, obtaining advice from a qualified tax professional is recommended to ensure proper compliance and to avoid paying tax twice on the same RSU income.

  • The Tax Dept. is encouraging taxpayers to voluntarily disclose all foreign assets and income reported under the Common Reporting Standard and the Foreign Account Tax Compliance Act. Accurate reporting through Schedules FA, Foreign Source Income, and TR, along with Income Tax Form 67 where applicable, helps taxpayers remain compliant, avoid penalties and prosecution, claim lawful tax reliefs, and maintain complete transparency in their tax affairs.

Practical Compliance Checklist for Restricted Stock Units Holders – Key Takeaways

  • Determine taxpayer Residential status Resident and Ordinarily Resident, Resident but Not Ordinarily Resident, Non-Resident Indian
  • Collect year-end brokerage statement.
  • Unvested restricted stock units are not taxable and need not be reported. Vested restricted stock units are taxed as salary income.
  • Fair market value taxed on vesting becomes the cost of acquisition.
    The sale of restricted stock units results in capital gains tax.
  • Schedule FA follows January–December, not April–March
    • Short-Term Capital Gain (≤24 months) → Slab Rate
    • Long-Term Capital Gain (>24 months) → 12.5%
  • Most restricted stock units holders should file ITR-2.
  • ITR-1 cannot be used once foreign restricted stock units vest.
  • For employees of Microsoft, Google, Amazon, Meta, Apple, NVIDIA, Salesforce, Oracle, Adobe, etc., restricted stock units held through Fidelity, E*Trade, Schwab, or Morgan Stanley generally require reporting in both Table A2 and Table A3 of Schedule FA once the taxpayer becomes a resident & ordinarily resident in India.
  • Disclose shares even if sold during the year
  • Match Schedule FA with Schedule AL (where applicable)
  • Foreign restricted stock units must be disclosed in Schedule FA
  • Report brokerage account in Table A2
  • Income tax report on restricted stock units shares in Table A3
  • Report dividends in Foreign Source Income
  • File Income tax Form 67 if claiming a foreign tax credit
  • Use State Bank of India Telegraphic Transfer Buying Rate for all INR conversions
  • Foreign dividends are taxable, and foreign tax credits can be claimed using Income Tax Form 67, Schedule Foreign Source Income, and Schedule TR.

RSUs vs Stock Options

RSUs Stock Options
Shares are granted directly after vesting Right to purchase shares at a fixed price
No purchase required The employee must pay exercise price
Always retain some value after vesting It may become worthless if stock price stays below strike price
Simpler compensation structure More complex and higher risk

Conclusion

  • RSUs are a valuable form of equity compensation that rewards employees with company shares once specified conditions are met. They are taxed as salary upon vesting and as capital gains when sold. Employees holding foreign-company RSUs should carefully comply with Indian tax disclosure requirements, including reporting foreign assets where applicable. Understanding vesting schedules, tax implications, and reporting obligations is essential to maximize benefits and avoid compliance issues. In summary, taxation is about the basics of the taxation of RSUs

  • At Vesting

    • Fair market value of vested shares is treated as salary income and taxed accordingly.
    • The Fair Market Value on the vesting date becomes the cost of acquisition for future capital gains calculations.

    At Sale

    • Any appreciation after vesting is taxed as capital gains.
    • Capital gains tax depends on the holding period and applicable tax rules.

    Taxation of Foreign RSUs in India

    For Indian residents, foreign company RSUs are taxable in India. Vested foreign shares must generally be disclosed in Schedule FA of the Income Tax Return. and foreign assets and income may also require reporting under Schedule FSI, Schedule TR, and Form 67 when claiming a foreign tax credit.

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