A few months ago, we set out on the goal to write the most comprehensive article on Foreign Equity in India. It's taken us a while, but this article is finally completed. We cover everything from Tax to Reporting requirements for Foreign Stocks, RSUs and ESPPs in India.

Full article with better formatting than reddit - https://www.reymanwealth.com/post/taxing-foreign-equity-in-india-rsus-espps-overseas-stocks

Section 01

Who This Applies To: Residential Status & Scope

The Indian tax system taxes individuals based on residential status, not citizenship. Your obligations differ significantly depending on whether you are a Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR).

Status	Indian income	Foreign income	Foreign asset reporting
ROR	Fully taxable	Fully taxable	Mandatory (Schedule FA)
RNOR	Fully taxable	Only if derived from India	Not required
NR	Fully taxable	Not taxable in India	Not required

Rule of thumb

Most employees at Indian MNC subsidiaries receiving stock compensation from a foreign parent are RORs. This guide primarily addresses ROR individuals, for whom all global income is taxable in India.

You are an ROR if you have been resident in India for at least 2 of the preceding 10 years AND for at least 730 days in the preceding 7 years.

Section 02

Restricted Stock Units (RSUs): Two-event Taxation

RSUs are taxed at two distinct moments: vesting and sale. Confusing these two events is the most common mistake made by employees.

Event 1 — Grant

No tax event. RSUs are merely a promise of future shares. Nothing is included in income at grant.

Event 2 — Vesting

Taxable as salary income. The fair market value (FMV) of shares on the vesting date, converted to INR, is treated as a perquisite under Section 17(2)(vi) of the Income Tax Act. Your employer is required to withhold TDS.

Event 3 — Sale

Taxable as capital gains. The difference between the sale price and the FMV at vesting (your cost of acquisition) is a capital gain or loss. Holding period is counted from the date of vesting.

Computing the perquisite at vesting

Perquisite Value = FMV on vesting date (in USD) × INR/USD rate on vesting date × Number of shares vested

The applicable exchange rate is the SBI TT buying rate as prescribed by the Income Tax Rules. Some employers use the RBI reference rate — check your Form 16 for the rate used.

Cost of acquisition for capital gains

The FMV that was taxed as salary at vesting becomes your cost of acquisition for capital gains purposes. You are not taxed twice on the same appreciation.

Capital Gain = Sale Proceeds (INR) − FMV at Vesting (INR)

Example

100 shares vest when ACME Corp trades at $50.
The INR/USD rate is ₹83.→ Perquisite = 100 × $50 × 83 = ₹4,15,000 added to salary;
TDS deducted by employer.
6 months later, shares are sold at $60.
INR rate is ₹84.→ Sale proceeds = 100 × $60 × 84 = ₹5,04,000→ Cost = ₹4,15,000
Short-term capital gain = ₹89,000 (held < 24 months)

Partial-year residents

If you were resident in India for only part of the vesting period, some employers apportion the perquisite. The Indian tax authority's position is that all perquisite is taxable in India if you are an ROR at the time of vesting, regardless of where you worked during the vesting period. Seek professional advice if you have multi-country history.

Section 03

Employee Stock Purchase Plans (ESPPs): Discount as Salary

ESPPs allow employees to purchase employer stock at a discount, typically 5–15%, sometimes with a look back period. The mechanics differ from RSUs but the tax logic is similar.

Taxation at purchase (the discount)

When you purchase ESPP shares, the discount you receive is treated as a perquisite under Section 17(2) and taxed as salary income in the year of purchase.

Perquisite = (FMV on purchase date − Purchase price) × Number of shares × INR rate

Taxation at sale (capital gains)

Your cost of acquisition is the FMV at purchase date (not your discounted purchase price). Holding period for LTCG/STCG purposes begins from the date of purchase.

Capital Gain = Sale Proceeds (INR) − FMV on purchase date (INR)

Look-back provisions

Many US-listed ESPPs have a look-back period (eg., 24 months) where the purchase price is 85% of the lower of FMV at offering date or purchase date. The tax authority will use FMV on the actual purchase date to determine the perquisite, not the offering date.

Event	Tax treatment	Head of income	TDS
ESPP Purchase	Discount = Perquisite	Salaries	Employer must deduct
ESPP Sale (within 24 months)	Gain over FMV at purchase	Short-term capital gains	No TDS on sale (self-report)
ESPP Sale (after 24 months)	Gain over FMV at purchase	Long-term capital gains	No TDS on sale (self-report)

Section 04

Foreign Stocks: Direct Investing via LRS

Individual residents may invest in foreign stocks directly through the Liberalised Remittance Scheme (LRS), with a per-year limit of USD 250,000 per individual.

LRS annual limit

USD 2,50,000 per individual per financial year. Includes all overseas investments, travel, education, etc.

TCS on remittance

20% TCS (Tax Collected at Source) on amounts exceeding ₹10 lakh remitted under LRS for investment purposes. Creditable against tax liability.

Tax treatment on acquisition

There is no tax event when you buy foreign stocks with LRS funds. The INR amount remitted (plus brokerage, fees, and foreign transaction charges) forms your cost of acquisition in INR terms.

Exchange rate for cost calculation

The cost of acquisition in INR is the INR amount you actually remitted. If you purchased using a foreign brokerage account with pre-existing funds, use the SBI TT buying rate on the date of purchase to convert.

Section 05

Capital Gains on Sale — Rates & Holding Periods

Key distinction

Foreign listed stocks are not treated as "equity" for Indian tax purposes. They are treated as unlisted securities. This means the preferential STCG rates applicable to Indian listed shares do NOT apply. Foreign stocks follow the rules for other assets.

Asset	Holding for LTCG	STCG rate	LTCG rate	Indexation
Indian listed equity / equity MF	> 12 months	20% (post-Jul 2024)	12.5% (no indexation)	No
Foreign listed stocks (RSU, ESPP, LRS)	> 24 months	Slab rate	12.5% (no indexation)	No (post-Jul 2024)
Debt MF	> 36 months	Slab rate	Always slab rate if purchased after 1 April 2023	No

Finance Act 2024 changes

From 23 July 2024, the LTCG rate on foreign stocks was reduced from 20% (with indexation) to 12.5% without indexation. Short-term gains continue to be taxed at slab rates. These changes apply to transfers on or after 23 July 2024. Gains on assets transferred before that date may be eligible for the prior regime.

Computing capital gain in INR

Capital Gain (INR) = [Sale proceeds in USD × INR rate on sale date] − [Cost in INR]

Any currency appreciation is embedded in the capital gain. There is no separate forex gain treatment for individuals under Indian law. If the INR depreciates, your INR gain will be higher even if the stock price was flat in USD.

Example 1: Short-Term Capital Gains (STCG)

In this scenario, the shares are held for less than 24 months, classifying them as a short-term asset.

Scenario: Investing in Disney

• Purchase Date: May 29, 2020
• Purchase Price: $117.30
• Sale Date: December 31, 2020
• Sale Price: $150.00

Exchange Rate:  You must use the SBI TT Buying Rate on the last day of the month immediately preceding the transaction month.

• Rate for Purchase (as of April 30, 2020): ₹75.00
• Rate for Sale (as of November 30, 2020): ₹80.00

Particulars	Calculation Breakdown	Amount in INR
Sale Value	$150.00 × ₹80.00	₹12,000.00
Less: Cost of Acquisition	$117.30 × ₹75.00	₹8,797.50
Short Term Capital Gain	₹12,000.00 - ₹8,797.50	₹3,202.50

Note: This gain of ₹3,202.50 will be added to the individual's total income and taxed at their applicable slab rate.

Example 2: Long Term Capital Gains (LTCG)

In this scenario, the shares are held for more than 24 months, classifying them as a long-term asset.

Scenario: Investing in Google

• Purchase Date: April 13, 2017
• Purchase Price: $840.18
• Sale Date: May 4, 2019
• Sale Price: $1,400.00

The Exchange Rate Rule:

Again, we look at the last day of the preceding months.

• Rate for Purchase (as of March 31, 2017): ₹70.00
• Rate for Sale (as of April 30, 2019): ₹75.00

The Calculation:

Particulars	Calculation Breakdown	Amount in INR
Sale Value	$1,400.00 × ₹75.00	₹105,000.00
Less: Cost of Acquisition	$840.18 × ₹70.00	₹58,812.60
Long Term Capital Gain	₹105,000.00 - ₹58,812.60	₹46,187.40

Note: Following the 2024 Budget updates, this Long-Term Capital Gain of ₹46,187.40 would be taxed at a flat 12.5% (without indexation benefits).

Set-off & carry-forward

• STCG on foreign stocks can be set off against STCG on any other capital asset (including Indian stocks).
• LTCG on foreign stocks can be set off only against LTCG on any other capital asset.
• Unabsorbed capital losses can be carried forward for 8 assessment years.
• Capital losses cannot be set off against salary or other income heads.

Section 06

Dividend Income from Foreign Stocks

Dividends received on foreign stocks, whether from RSU/ESPP shares or LRS investments, are fully taxable in India as Income from Other Sources at your applicable slab rate.

Grossing up for foreign withholding tax

Many jurisdictions (notably the US) withhold tax at source. For example, the US withholds 25% on dividends paid to Indian residents (the US-India DTAA reduces this to 15% if W-8BEN is filed correctly with your broker).

In India, you must include the gross dividend (before foreign withholding) in your income. You then claim a Foreign Tax Credit (FTC) for the withholding tax paid abroad.

Taxable dividend income in India = Gross dividend (in USD) × INR rate on receipt date

Form W-8BEN: should you file it?

If you hold US stocks (common with ESPP/RSUs from US-listed employers), filing a W-8BEN with your US broker or custodian confirms your non-US status and activates the 15% DTAA rate instead of the default 30% withholding. This directly reduces foreign tax withheld.

Section 07

Foreign Tax Credit: Avoiding Double Taxation

India provides relief from double taxation through Foreign Tax Credit (FTC) under Rule 128 of the Income Tax Rules, read with Section 90/91 of the Income Tax Act.

Who can claim

Any ROR who has paid tax in a foreign country on income that is also taxable in India. This covers: US capital gains tax, US dividend withholding, and similar taxes in other jurisdictions.

How FTC works

Step 1

Determine the Indian tax on the doubly-taxed income (computed as if it were your last layer of income).

Step 2

Determine the foreign tax paid on that income, converted to INR at the SBI TT buying rate on the date of payment.

Step 3

FTC = Lower of (Indian tax on that income) or (Foreign tax paid). You cannot claim FTC exceeding your Indian tax liability on that income.

Step 4

File Form 67 on the income tax portal before filing your ITR. Without Form 67, FTC claims are disallowed.

Critical deadline

Form 67 must be filed on or before the due date of ITR (typically 31 July, or 31 October if audit required). Courts have held that belated filing of Form 67 results in denial of FTC. Do not overlook this step.

FTC is not available for

• Taxes that are refundable or which were never actually paid (e.g., if you received a full refund abroad).
• Interest or penalties paid abroad, only the core tax qualifies.
• Taxes paid on income not included in your Indian return.

Section 08

Reporting Obligations — Schedule FA, Form 67, ITR

For ROR individuals, holding foreign assets triggers mandatory disclosure requirements that are separate from your tax payment obligations. Failure to report can trigger severe penalties under the Black Money Act 2015.

Schedule FA (Foreign Assets) in ITR-2 / ITR-3

Any ROR holding foreign assets at any point during the financial year must disclose them in Schedule FA. This includes:

Table in Schedule FA	What to report
A1 — Foreign depository accounts	Foreign bank accounts (held directly or jointly)
A2 — Foreign custodial accounts	Brokerage accounts holding foreign securities (RSUs, ESPPs, LRS stocks)
A3 — Foreign equity & debt interests	Direct shareholding in foreign companies >1% stake
A4 — Foreign cash value insurance / annuity	Foreign life insurance or pension contracts with cash surrender value
A5 — Financial interest in foreign entity	Any beneficial ownership or signing authority in foreign entity

Information required for each account/holding

• Country name and code
• Name and address of institution/company
• Account number or identification
• Peak balance / peak value during the year (converted to INR)
• Closing balance / closing value
• Gross proceeds from sale during the year
• Income earned and included in Indian return

Unvested RSUs — do they count?

Yes. Unvested RSUs represent a beneficial interest in a foreign entity and must be disclosed in Schedule FA from the first year of grant. Many employees miss this because no economic benefit is yet realised. The disclosure is based on the grant, not the vest.

in general, below is the best practice agreed upon by most tax advisors:

• What part of Schedule FA do you report your RSUs or ESPPs? A3 - Foreign equity and debt interest? B - Financial interest in any entity outside India? D - Any other capital assets outside India? Unfortunately, this isn't a black and white answer. This involves a discussion regarding what has been done in previous years. You do not want to change positions from year to year (unless what was done earlier is completely wrong). A lot of articles and opinions seem to suggest you can report it under D. Other Assets since reporting requirements are lower in said schedule. We generally do not subscribe to this view.
• Calendar Year reporting Note that reporting in Schedule FA is based on the accounting year followed by the country in which asset is held. This means that if your shares are of a US company, you will have to follow calendar year basis for reporting.
• Initial Value of Investment The value of your investments (in foreign currency) as on the initial date of vesting multiplied by SBI TT/ RBI reference rate on said date.
• Peak Value of Investment This is the highest value of your investment during the Calendar Year. If you are reporting assets for FY 2025-26, consider Calendar Year 2025. Highest value in USD will be multiplied by SBI TT/ RBI reference rate on said date
• Closing Value of Investment Value of investments as on 31 December multiplied by SBI TT/ RBI reference rate said date.
• Should I report the Company name (Alphabet, Amazon, etc) or the Broker name (Morgan Stanley, E-trade, etc). This is a judgement call to be honest. Work with your CA and determine which is the best option in your case - we've gone both ways on this depending on the facts of the case.
• Reporting of income and sales Any income (say dividend) or sale of RSUs is required to be reported under schedule FA. Ensure you don't miss out on this part. We've had a lot of people reach out to us after making this mistake.
• Do I have to create separate line items for each purchase/ vesting? Can I show all RSUs under one line in Schedule FA? Again, unfortunately, this is a judgement call. Work with your CA to determine what works best in your case.

Which ITR form to use

If you hold foreign assets, you cannot use ITR-1 (Sahaj). You must use ITR-2 (if no business income) or ITR-3 (if you have business or professional income or are a partner in a firm). Schedule FA is available only in ITR-2 and ITR-3.

Section 09

FEMA & LRS Compliance

Beyond the Income Tax Act, foreign equity holdings are regulated by the Foreign Exchange Management Act (FEMA) administered by the Reserve Bank of India.

RSUs & ESPPs from employer

Covered under the FEMA (Transfer or Issue of Foreign Security) Regulations. An Indian resident may hold shares received as compensation without separate RBI approval, provided the employer is a listed foreign company.

LRS direct investments

Permitted under the LRS limit of USD 2,50,000 per financial year. All remittances go through an AD-I bank, which reports to RBI's FLAIR system.

Repatriation of sale proceeds

Sale proceeds from foreign stocks must be repatriated to India within 180 days a reasonable time (generally interpreted as within 60–90 days of sale, though no hard deadline is specified). Proceeds may be credited to an RFC (Resident Foreign Currency) account or reinvested under LRS.

APR — Annual Performance Report

If you hold shares in a foreign company equivalent to a 10% or greater stake (unlikely for typical RSU/ESPP holders but possible for founders), you must file an Annual Performance Report (APR) with RBI through your AD bank. This is separate from the income tax Schedule FA disclosure.

Section 10

Common Mistakes & Penalties

Mistake	Consequence	Penalty risk
Not disclosing unvested RSUs in Schedule FA	Treated as undisclosed foreign asset	Black Money Act — ₹10L flat + 300% tax on value
Using ITR-1 when holding foreign assets	Return treated as defective; notice issued	Notice u/s 139(9); return invalid
Not filing Form 67 before ITR due date	FTC disallowed; entire foreign tax becomes a cost	Higher tax payable + interest u/s 234B/C
Treating foreign stock LTCG at 10% (equity rate)	Under-declaration of tax	Tax demand + penalty u/s 270A
Not grossing up dividend (reporting net of withholding)	Under-declaration of income	Penalty u/s 270A up to 200% of tax
Wrong exchange rate used for perquisite valuation	Incorrect cost of acquisition → wrong capital gain	Potential mismatch with Form 16; scrutiny risk

Section 11

Summary Cheat Sheet

Event	Income head	Rate	TDS?	Form/Schedule
RSU vesting	Salaries (perquisite)	Slab	Yes (employer)	Form 16 / Schedule S
RSU sale < 24 months	STCG	Slab	No	Schedule CG
RSU sale > 24 months	LTCG	12.5%	No	Schedule CG
ESPP purchase (discount)	Salaries (perquisite)	Slab	Yes (employer)	Form 16 / Schedule S
ESPP sale < 24 months	STCG	Slab	No	Schedule CG
ESPP sale > 24 months	LTCG	12.5%	No	Schedule CG
Foreign dividend	Other sources	Slab	No (self-report)	Schedule OS + Form 67
LRS stock sale < 24 months	STCG	Slab	No	Schedule CG
LRS stock sale > 24 months	LTCG	12.5%	No	Schedule CG
Foreign asset disclosure	—	Mandatory	—	Schedule FA (ITR-2/3)

Applicable ITR forms

Foreign asset holders must use ITR-2 (salaried with capital gains) or ITR-3 (with business income). ITR-1 is not eligible. Always file Form 67 for FTC claims before submitting your ITR.