Several corporates award their top performers with RSUs. RSUs or Restricted Stock Units, as the name suggests are both ‘restricted’ and ‘stocks’ which simply means these come as stocks but with certain restrictions, these may be subject to forfeiture and other conditions regarding vesting as the company may define.
Taxation of RSUs
Tax impact on RSUs arise when these vest. At the time of vesting your gains are not capital in nature and the income earned by you has to be disclosed under other income in your income tax return.
When you sell these vested stocks and have a gain, at this moment your gains are taxed as capital gains.
If the shares are listed on an Indian stock exchange – on sale you may earn a short term capital gain if these are sold within 1 year of vesting or a long term capital gain when sold after more than a year of vesting. Short term gains are taxed at 15% while long term gains are exempt from tax.
If share are listed on a foreign stock exchange – Since no STT is paid, such securities are considered unlisted securites for Indian tax returns. Unlisted securities are considered long term after 36 months. Short term gains shall be added to your total income and long term gains shall be taxed @20% after indexation (calculating gains without indexation is not available in case of equity). For indexing cost pls apply CII of year of purchase for example indexed cost of acquisition = Cost price x CII of 2014-15/CII if year of purchase. Here are all the CIIs you can refer to here.
It’s likely that some tax has already been deducted from your gains in the country where these are listed. In such a case you can take benefit of DTAA between the two countries. You will also have to disclose these as part of foreign income if you are a resident taxpayer in India.
Reporting your Foreign RSUs
Since RSUs are not a capital asset or financial or equity interest until vested these can be reported as part of other assets in schedule FA in your income tax return.
When you have incurred a loss
In case you have incurred a loss though you do not have any tax liability, you are allowed to carry forward short term capital losses in your tax return and adjust & set them off against gains in future years.
RSUs must be reported under Details of any other Asset/ Investment outside India. These are reported as “Financial Interest in a Foreign Entity” when your holding is more than 5%.
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