Sale of RSU

 Which exchange rate should i consider for conversion from USD to INR if i have sold shares listed in the USA?

As per Rule 115 of the Income tax rule Exchange rate is decided as follows- the last date of the preceding month in which such capital gain is incurred. For example, if you sold shares on 15th Mar 2024, Then you need to use the 29th Feb 2024 exchange rate.

Such exchange rate will be multiplied by the capital gain (U.S.D) to convert the value to INR.

What Are RSUs?

RSUs are stock-based compensation that vests over time based on predefined conditions, such as tenure, performance, or other company-specific criteria. Until the RSUs vest, the employee does not own the shares. Once vested, RSUs become taxable and can be sold at the employee’s discretion.

Taxation of RSUs in India – Step-by-Step Guide

Tax on Grant of RSUs

At the time of grant, no tax liability arises since the employee does not have ownership rights yet.

Tax on Vesting of RSUs

RSUs are treated as a perquisite and taxed under "Income from Salary."

• The Fair Market Value (FMV) on the vesting date is considered part of salary income and taxed as per the employee’s income tax slab rates.
• The Indian employer deducts TDS (Tax Deducted at Source) on this perquisite and deposits it with the Income Tax Department.

Tax on Sale of RSUs

When an employee sells vested RSUs, capital gains tax applies:

• Short-Term Capital Gains (STCG): If sold within 24 months, the gains are taxed as per the individual’s income tax slab rate.
• Long-Term Capital Gains (LTCG): If held for more than 24 months, the gains are taxed at 12.5% (without indexation benefits).

Taxation of RSUs in the US

If you're an Indian resident receiving RSUs from a US employer, understanding US taxation is equally important.

• RSUs are granted under RSU/RSPA programs.

• No tax liability until they are substantially vested (i.e., transferable and not subject to forfeiture).

• On vesting, Fair Market Value (FMV) – Amount Paid per share is considered ordinary income.

• Income is subject to federal + state tax as per applicable rates, along with Social Security + Medicare tax.

• Employer Withholding: Some shares are deducted by the employer for tax withholding before being credited to your brokerage account.

• Sale of Shares: Subject to capital gains tax (short-term or long-term, depending on the holding period).

• Dividend Taxation: Any dividend earned is taxable in the year it is received.

How Are RSUs Processed in India?

• RSUs are typically credited to an employee’s Demat account with a US-based brokerage (e.g., E-Trade, Fidelity, or Charles Schwab).
• The vested RSUs are reported in Form 16 as a perquisite.
• Many brokers automatically sell a portion of the vested shares to cover tax liabilities.

Capital Gains Calculation in India

Capital Gains = Sale Price - FMV on Vesting Date

Losses from RSU sales can be offset against other capital gains as per Indian tax laws.