Foreign RSU/ESOP Share Sales: Capital Gains Tax and ITR Reporting Trap for FY 2025-26

Employees of US-headquartered multinational groups increasingly receive compensation in the form of RSUs and ESOPs of the foreign parent, which subsequently get sold on NASDAQ, NYSE or other overseas exchanges. When these shares are disposed of, two separate tax events arise under the Income Tax Act 1961, and both must be correctly captured in the Income Tax Return (ITR).

For FY 2025-26, many resident employees will again face substantial tax exposure on these transactions, often without any TDS trail or AIS visibility. Non-reporting or under-reporting is extremely risky, as cross-border information exchange mechanisms now give the Income Tax Department much deeper insight into foreign securities income.

This article reorganizes and explains the law and compliance steps for sale of RSU/ESOP shares of US-listed companies by resident assessees for FY 2025-26 (AY 2026-27).

Dual Tax Incidence on RSU/ESOP Shares

1. Salary Perquisite on Vesting/Exercise

The first taxable incident occurs when RSUs vest or ESOPs are exercised.

In the case of RSUs, on the vesting date, the fair market value (FMV) of the shares becomes taxable as a perquisite under the head “Salaries”.
For ESOPs, perquisite taxation arises at the time of exercise, again based on FMV on that date.
The employer is responsible for:
- Calculating the perquisite value
- Deducting TDS as part of the monthly salary
- Reporting the perquisite in Form 16 under salary details

Therefore, at this stage, the assessee typically has no separate reporting burden other than verifying that Form 16 correctly reflects the value and that the TDS credit is available in Form 26AS/AIS.

Note: The FMV considered for perquisite taxation later becomes the cost of acquisition for computing capital gains at the time of sale.

2. Capital Gains on Subsequent Sale of Shares

The second taxable event occurs when the same shares are sold on a stock exchange (for example, NASDAQ or NYSE) or through an overseas brokerage account.

At this stage:

Capital gains are computed as:

Sale consideration (net of brokerage, in INR)
minus
Cost of acquisition (FMV already taxed as perquisite at vesting/exercise, converted to INR)
This difference is taxable as Capital Gains (short-term or long-term, depending on the holding period).
No TDS is deducted on this sale by the foreign broker or employer.
In many cases, such sales may not reflect in AIS/SFT/TIS by the ITR filing due date, leading some assessees to ignore or defer reporting.

However, this second leg of taxation is independent of the first and must be reported separately in Schedule CG of the ITR.

Capital Gains Tax Rates on Foreign-Listed Shares

Since these RSU/ESOP shares are listed only on foreign stock exchanges, the preferential tax regime for Indian-listed equity shares does not apply.

For FY 2025-26, the tax treatment is as under:

Nature and Holding Period Classification

Short-Term Capital Gain (STCG)
- Holding period: Less than 24 months
- Tax rate: Applicable slab rate
  - For many salaried assessees, this may go up to 30% plus surcharge and cess
Long-Term Capital Gain (LTCG)
- Holding period: 24 months or more
- Tax rate: 12.5%, without indexation benefit

Important: For these foreign-listed equity shares, the 12-month period relevant for Indian listed equity does not apply. The 24-month threshold determines long-term vs short-term status.

Illustration of Tax Impact

Assume an assessee, Ms.