Global tax reach for RORs: foreign RSU gains are taxable in India
If you are a Resident and Ordinarily Resident (ROR) in India, your worldwide income is subject to Indian tax. That rule explicitly covers gains arising from the sale of foreign Restricted Stock Units (RSUs) — so foreign equity awards are not outside the tax net just because the employer or shares are overseas.
Who counts as an ROR?
Broadly, an ROR is a taxpayer who qualifies as a tax resident of India under domestic residency rules and meets the additional conditions that make them “ordinarily resident.” In practical terms, this means most people living and working in India for most of the year will fall into this category and must report global income.
How RSUs are taxed
- Tax at vesting: When RSUs vest, the market value of the shares is treated as a perquisite and is taxable as salary income in India.
- Tax on sale: When you later sell the shares, any gain or loss is treated as a capital gain or loss. The taxable gain is generally the difference between the sale proceeds and the value already taxed at vesting (which becomes your cost basis).
- Holding period matters: Whether the capital gain is short-term or long-term depends on the holding period as defined under Indian tax rules, which affects the applicable tax rate.
Dealing with foreign tax credits and double taxation
Because the same RSU income or gains could be taxed abroad, you can usually claim relief in India to avoid double taxation. Indian tax rules provide for a foreign tax credit for taxes paid overseas, and tax treaties (DTAA) may offer additional relief. To claim credit you will need documentation of foreign taxes paid.
Practical tips for RSU holders
- Keep records: Maintain documentation of grant, vesting dates, market values at vesting, sale transactions and any foreign tax paid.
- Check withholding: Employer withholding abroad may not match your Indian tax liability — plan for any shortfall when filing returns.
- Use the correct cost basis: Treat the value taxed at vesting as your cost for computing capital gains on sale.
- Claim foreign tax credits: Include proof of foreign taxes paid when filing your Indian return to avoid double taxation.
- Consult a tax professional: Cross-border equity compensation can be complex; a specialist can help with planning and compliance.
For ROR taxpayers, foreign RSUs are part of the taxable universe in India. Staying organized and understanding how vesting and sale are treated will help you meet compliance obligations and manage your tax cost effectively.