How to Report US RSUs & ESOPs in Your Indian ITR (2026)

Your RSUs vest, you open Form 16, and your jaw drops: there's a ₹40 lakh “perquisite”you don't remember earning, with tax already gone via sell-to-cover. Alarming — but that part is handled. Here's the twist: the number that actually lands tech employees in trouble isn't on Form 16 at all. It's a disclosuremost people don't know exists — and getting it wrong is a ₹10 lakh penalty under a different law entirely.

US RSUs and ESOPs get taxed — and reported— in up to four separate places on your return. Miss one and you either overpay or invite a notice. Tick your situation below to see exactly which apply to you, then we'll walk through each.

Phase 1 — Vesting is salary, not capital gains

Nothing happens when RSUs are granted. The tax begins at vesting (for ESOPs, at exercise). On that day the fair market value of the shares is treated as a perquisite under Section 17(2)(vi), added to your salary, and taxed at your slab rate — which, stacked on a software salary, usually means 30% plus surcharge and cess. Your employer settles it through TDS, typically by selling enough freshly-vested shares to cover it (“sell-to-cover”).

Convert the dollar FMV to rupees using the SBI TTBR on the vesting date(Rule 26). This value almost always shows up in your Form 16 / Form 12BA already — your job is to confirm it's there and flows into the Salary head, not to re-add it.

Phase 2 — Selling: the capital-gains stage (and the unlisted trap)

When you sell, only the appreciation since vesting is taxed again: gain = (sale price − FMV at vesting) × shares. The vesting value is your cost basis, not zero — it was already taxed as salary.

Here's the trap. Even though your Google or Microsoft shares trade on the Nasdaq, Indian law treats foreign-company shares as unlisted. So the listed-share rules don't apply:

• Long-term needs 24 months, not 12. Sell at 23 months and it's still short-term.
• Short-term gains are taxed at your slab rate — up to 30% — not a flat 20%.
• Long-term gains are a flat 12.5% under Section 112, with no indexation and no ₹1.25 lakh exemption (that exists only for Indian listed shares under 112A).

Report it in Schedule CG, converting the sale value at the TTBR on the last day of the month before the sale (Rule 115) — not the sale date itself, which is where most guides slip. Want the exact figure? Run it through the RSU tax calculator — it applies the foreign-share rules and shows how much waiting past 24 months would save you.

Phase 3 — Don't pay tax twice: the Foreign Tax Credit

If tax was withheld in the US — on your vesting income, or on dividends — you don't have to eat it twice. The India–US DTAA lets you claim that US tax as a Foreign Tax Credit against your Indian liability. Three moving parts:

• File Form 67 on the e-filing portal before you file your ITR (and no later than the end of the assessment year, 31 March 2027).
• Fill Schedule FSI (foreign-source income) and Schedule TR (tax relief) — and make the numbers match Form 67 exactly, or the credit is refused.
• The credit is capped at the Indian tax on that income, and can't be carried forward.

Phase 4 — The disclosure that bites hardest: Schedule FA

This is the one that turns a routine return into a notice. If you're Resident and Ordinarily Resident, you must disclose every foreign share you hold in Schedule FA — whether or not you sold, whether or not it paid a dividend. Simply holding it is the trigger.

Two details catch almost everyone. First, Schedule FA runs on the calendar year, not the financial year: for AY 2026-27 you report shares held at any point between 1 January and 31 December 2025, with their initial value, peak value during the year, and closing value on 31 December (Table A3). Second, the penalty for missing it — ₹10 lakh a year under the Black Money Act — is a different law from income tax, so it bites even if you owed no extra tax. (A relief from October 2024 waives the penalty if your total foreign movable assets stay under ₹20 lakh — but the duty to disclose still has no threshold.)

Missed disclosing in earlier years?

You're not alone — thousands of tech employees filed ITR-1 for years without realising their RSUs needed Schedule FA. Where the window is still open, file an updated or revised return to add the missing disclosure, and take prior years to a CA. A voluntary-disclosure scheme (FAST-DS 2026) has been proposedto offer a one-time amnesty for exactly these gaps — but as of mid-2026 it has not been notified or commenced, so treat it as a maybe, not a plan. Regularise what you can now; don't wait for a window that may never open on the terms you expect.

What it means for you

Honest take: the income tax on RSUs is mostly automatic — your employer handles the big vesting number, and the sale is simple arithmetic once you know foreign shares are “unlisted.” The effort that actually protects you is the reporting: claim your foreign tax credit so you don't overpay, and file Schedule FA so a clerical omission doesn't become a ₹10 lakh problem.

Start with the number, then the forms. Work out your exact RSU tax — vesting plus sale, with the 24-month timing lever — then use the checklist above to tick off every schedule before you hit submit. And if you're not sure you're even a resident this year, that decides whether Schedule FA applies at all — confirm your status first.

For AY 2026-27 (FY 2025-26), for a Resident and Ordinarily Resident. Rates, rules, section references and the FAST-DS status are based on the Income Tax portal and reputable sources at the time of writing and can change; FTC, DTAA and Schedule FA treatment depend on your specific facts. Confirm on incometax.gov.in or with a qualified CA before filing. General information, not tax advice.