Many Indians employed by multinational corporations get RSUs (Restricted Stock Units) as pay. RSUs sound great since they award shares of your company; but, they also carry tax obligations. RSU tax withholding is one of key components of this.
Let’s figure out what you have to do and how it works.
RSUs stand for what?
Restricted Stock Units, or RSUs, are shares awarded to an employee by their company either as part of a pay scale or as a thank you. These shares vest over time, thus you never own them right away. Once vested, they start to show as income.
Describe RSU Tax Withholding.
RSU tax withholding is the process whereby your employer automatically deducts tax on the value of those shares and pays it to the government when your RSUs vest—become yours. This is carried out exactly as TDS on pay.
Therefore, you still have to pay taxes even though you do not have cash on hand since RSUs are included into your income.
When taxes RSUs?
RSUs are taxed in India at vesting rather than at grant time.
Considered as salary income, the market value of the vesting date shares
Added to your overall income, it is taxed according to your income tax slab.
For instance, you get one hundred RSUs.
The market price each share on vesting day is ₹2,000.
100 x ₹2,000 = ₹2,00,000 total value
Your salary income is increased with this ₹ 2,00,000; your company withholds taxes.
Event at Sale:
Should you subsequently sell the shares:
Vesting price differs from sale price; taxed as capital gain
If held for more than two years (foreign shares), LTCG at 20% with indexation applies.
STCG is taxed per your slab if sold before two years.
RSU Tax Retention in International Business
Should you be employed for a US or foreign-based company:
Like the US, that nation typically withholds taxes at vesting time.
Depending on your residence status, you could also have to pay taxes in India.
DTAA lets you avoid double taxation by claiming relief.
Managing RSU Tax in India
Count RSU income into your pay when vesting.
Record capital gains right before a sale.
See Form 26AS to confirm TDS.
Get foreign tax credit if you paid taxes elsewhere.
When you file your return, use ITR-2—for salaried people with capital gains.
Strategies for Intelligent RSU Tax Management
Track vesting rules and share values.
Save money for taxes should withholding prove insufficient.
Don’t overlook RSUs as you make tax-saving plans.
If RSUs from outside India are being received, see a tax professional.
Lastly
Equity-based pay heavily relies on RSU tax withholding. You pay taxes on the value of the shares you obtain even though you do not get cash. To prevent surprises and penalties, then, be aware, make plans ahead, and file your taxes accurately.
