Restricted Stock Units (RSUs) are a form of equity compensation in which a company promises to give an employee shares once certain conditions, usually a vesting schedule, are met. Until they vest, RSUs are just a promise; once they vest, the employee receives actual shares (or their cash value). RSUs are a common way for technology and growth companies to reward and retain people, and in India they carry specific tax treatment that employers and employees both need to understand.
How do RSUs work?
RSUs convert from a promise into real shares over time, according to a vesting plan. The typical lifecycle is this.
- Grant: the company awards a number of units, with no immediate value transferred.
- Vesting: units vest over a schedule, often across several years, sometimes with an initial cliff.
- Settlement: on vesting, the employee receives shares or their cash equivalent.
How are RSUs taxed in India?
RSUs are taxed at two separate points in India, which is a common source of confusion. The general position is as follows.
- At vesting: the value of the vested shares is treated as a perquisite and taxed as part of salary income.
- At sale: any gain between vesting value and sale price is taxed as a capital gain.
- Foreign shares: shares in an overseas parent can carry extra reporting and foreign-asset disclosure obligations.
RSUs vs ESOPs
RSUs and employee stock options are both equity awards, but they work differently. The table draws the contrast.
| Feature | RSU | ESOP |
|---|---|---|
| What it is | Promise of shares | Option to buy shares |
| Cost to employee | None to receive | Exercise price |
| Value if price falls | Still has value | May be worthless |
This information is for general guidance. Confirm current rules and consult tax experts for your specific situation.
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