Foreign ESOPs and RSUs in India: Tax, FEMA, Schedule FA

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24 Oct 2026

Updated 24 October 2026 · By Regi Tom Antony, FCA, MBA (Australia), ACMA (UK), CGMA (USA), CISA (USA)

Almost every month someone working for the Indian arm of a US or European company sits across my desk with a brokerage statement they do not fully understand. The RSUs vested, the payslip shows a large "perquisite", and they want to know what else they are supposed to do.

The honest answer is that foreign shares from your employer are taxed twice in India's eyes, once as salary when you get them and again as capital gains when you sell, and they also have to be reported every year in your return as a foreign asset. Most people get the first part right because the employer handles it. The rest is where trouble starts.

When the tax first bites

For an ESOP, the taxable moment is exercise. For RSUs, it is vesting. On that date the fair market value of the shares, minus anything you paid for them, is treated as a perquisite and added to your salary. Your Indian employer deducts tax on it through payroll.

From 1 April 2026 this sits under the Income-tax Act, 2025, which replaced the 1961 Act, but the concepts have not changed. The perquisite value becomes your cost when you later sell, so the same rupee is not taxed twice.

FEMA: you are making an overseas investment

Holding shares of a foreign company makes you an overseas portfolio investor under the Foreign Exchange Management (Overseas Investment) Rules, 2022. Schedule III, paragraph 3(1) of those Rules lets a resident employee or director of the Indian office, branch or subsidiary of the foreign company acquire shares under an ESOP or employee benefit scheme without any monetary limit, provided the plan is offered by the foreign company globally on a uniform basis.

If you exercise options by sending money from India, that remittance goes through your bank under the Liberalised Remittance Scheme and is counted against your USD 250,000 annual LRS limit, as set out in the RBI Master Direction on LRS. It also attracts TCS once your LRS remittances in the year cross ₹10 lakh, which I explain in my post on TCS on LRS remittances from April 2026. RSUs and cashless exercises involve no remittance, so LRS and TCS do not come in.

The Indian entity you work for reports these acquisitions to the RBI in Form OPI every half year. That is the employer's obligation, but it is worth checking with HR that it is being done.

When you sell

When you sell the shares, the gain is the sale price minus the fair market value that was taxed as perquisite. Shares of a foreign company that are not listed on an Indian exchange are treated as unlisted for this purpose. If you held them for more than 24 months, the gain is long-term and taxed at 12.5% without indexation; if 24 months or less, it is added to your income and taxed at slab rates.

The US generally does not tax a non-resident on the sale of shares, so there is usually no foreign tax on the gain. Dividends are different. A US company will typically withhold tax on dividends, and under the India–US tax treaty the rate for an individual shareholder is generally 25%. That withholding can be set off against your Indian tax on the same dividend, but only if you file Form 44 (the form that replaced Form 67) under rule 76 of the Income-tax Rules, 2026. The CBDT FAQ on Forms 44 and 45 says Form 44 must be filed within 12 months from the end of the tax year, provided your return was filed on time.

The part people forget: Schedule FA

If you are resident and ordinarily resident, every foreign share you hold, vested RSUs sitting in an E*TRADE or Fidelity account, and even the cash balance in that brokerage account, has to be reported in Schedule FA of your return. Schedule FA follows the calendar year, not the April to March year, which catches people out. Any dividend or capital gain from those shares also goes into Schedule FSI.

Missing Schedule FA is not a small slip. Under section 43 of the Black Money Act, failing to report a foreign asset can attract a penalty of ₹10 lakh. Since 1 October 2024, that penalty does not apply where the aggregate value of your foreign assets other than immovable property is ₹20 lakh or less, but a few years of RSUs crosses that threshold faster than people expect.

A story from last year

Take Arjun (not his real name), a product manager in Kochi with a US software company, with RSUs vesting every quarter since 2021. His employer withheld tax correctly each time, so Arjun assumed he was compliant. He had never filled in Schedule FA, and by March 2026 his holdings were worth about ₹45 lakh.

The income had been taxed; the disclosure was missing. That is exactly what the current disclosure scheme was built for. Because his shares came out of income already taxed in India and their value was well under ₹5 crore, he could regularise the past years by paying a flat fee of ₹1 lakh. I have set out how that works in my post on FAST-DS 2026 and Schedule FA. The window closes on 31 December 2026, so anyone in Arjun's position should not sit on it.

A few things people ask me

People often ask me whether shares sold on vesting to cover tax still matter. They produce a small gain or loss, and any shares or cash left in the account during the calendar year belong in Schedule FA.

Some ask about the cross-charge, where the foreign parent recharges the plan cost to the Indian subsidiary. That is a matter for the company's books and transfer pricing, not your personal return.

Those who have moved back to India with older stock plans ask whether this applies to them. It depends on your residential status each year; my note on residential status under the new law explains how that is decided. An RNOR does not have to fill in Schedule FA, but the obligation starts in the first year you become ordinarily resident.

Foreign stock plans sit where tax, FEMA and reporting meet, which is why we treat them as part of our cross-border tax and FEMA advisory work rather than a payroll question. If you are unsure where you stand, write to us at letstalk@rtaandassociates.com.

For how this fits with FEMA, treaties and GST more broadly, see our guide to cross-border tax and FEMA advisory.

Related guides

Regi Tom Antony, FCA, MBA (Australia), ACMA (UK), CGMA (USA), CISA (USA)
Regi Tom Antony & Associates, Chartered Accountants, Kochi

This is general information based on the law as at 24 October 2026, not advice for your particular situation.