---
title: "What Are Restricted Stock Units (RSUs)?"
url: https://www.wisemonk.io/glossary/what-is-restricted-stock-units-rsu
lang: en
---

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# What are Restricted Stock Units (RSUs)?

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**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.

1. **Grant:** the company awards a number of units, with no immediate value transferred.
2. **Vesting:** units vest over a schedule, often across several years, sometimes with an initial cliff.
3. **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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