Tax on Foreign Income, ESOPs & RSUs for Residents

What is tax on foreign income, ESOPs and RSUs?

Residents of India are taxed on their worldwide income. That includes RSUs and ESOPs from foreign employers, dividends from US shares, interest on foreign accounts, rent from property abroad, and gains on foreign investments. Employee stock options from Indian startups have their own rules too.

Getting it right means taxing each item at the right time and rate, claiming credit for foreign taxes, and reporting foreign assets in the return. Mistakes lead to notices and, for foreign assets, potentially severe penalties.

The key terms

What employees and investors need to know:

Perquisite on vest or exercise

RSUs are taxed as salary when they vest; ESOPs when they're exercised, on the difference between market value and price paid.

Startup deferral

Employees of eligible startups can defer tax on ESOP perquisites until a later event, such as sale or leaving.

Capital gains on sale

Gains above the value taxed as perquisite are capital gains when shares are sold.

Foreign shares' holding period

Unlisted in India, so long-term after 24 months, taxed at 12.5% since July 2024.

Foreign tax credit

Credit for tax paid abroad on the same income, claimed by filing Form 67.

Schedule FA

The schedule for reporting foreign assets and income, on a calendar-year basis.

Exchange rates

Specific rules decide which rupee conversion rate applies to each item.

Why it matters

Foreign income is closely tracked:

Information exchange

Tax authorities receive data on foreign accounts under global exchange agreements.

Black Money Act

Not reporting foreign assets can attract heavy penalties.

Double taxation

Without claiming credit, the same income is taxed twice.

Timing

RSUs and ESOPs are taxed at vest or exercise, even before sale.

Cash flow

Tax on perquisites is due even if shares aren't sold.

Complex computations

Cost, holding period and exchange rates are easy to get wrong.

Law changes

Rates and holding periods changed in 2024, and the 2025 Act applies from tax year 2026-27.

Who is this for?

Residents who are not ordinarily resident (RNOR) generally aren't taxed on foreign income; we check status first.

When each item is taxed

Common items and their tax treatment:

What we'll need from you

Grant documents

Grant letters, vesting schedules and exercise details.

Brokerage statements

Statements for all foreign accounts.

Foreign tax documents

Forms like the US 1042-S or 1099, and withholding details.

Form 16

Showing perquisites taxed by the employer.

Bank statements

Foreign bank accounts and balances.

Travel dates

To confirm residential status.

Pricing depends on the number of foreign accounts and transactions.

How we handle foreign income

Our approach:

1. 1

   Confirm status

   Residential status is confirmed for the year.

2. 2

   Collect data

   Grants, vests, sales and foreign income are compiled.

3. 3

   Compute

   Perquisites, gains and income are computed with the right exchange rates.

4. 4

   Claim credit

   Foreign tax credit is calculated and Form 67 filed.

5. 5

   Report assets

   Schedule FA is prepared.

6. 6

   File

   The return is filed and notices answered if needed.

Planning ahead

Beyond filing:

Sale timing

Hold foreign shares over 24 months for long-term rates.

Advance tax

Pay advance tax on gains and dividends to avoid interest.

TCS on remittances

Plan LRS remittances for TCS and its credit.

Keep records

Keep vesting and cost records for future sales.

Foreign returns

Coordinate with foreign filings where needed.

Status changes

Plan around moves abroad or back.

Benefits and responsibilities