The Double Taxation of Company Stock
If you work for a multinational tech company in India (like Google, Amazon, or Microsoft), you likely receive part of your compensation in company shares through Restricted Stock Units (RSUs) or an Employee Stock Purchase Plan (ESPP).
Many employees are surprised to learn that these shares are taxed at two different stages: when you get them, and when you sell them.
Quick stat: Foreign company shares are treated as unlisted, so the long-term holding period is 24 months and LTCG is taxed at 12.5% with no Rs 1.25 lakh exemption (Source: Finance (No. 2) Act, 2024).
Stage 1: Vesting (Taxed as Salary)
When your RSUs vest (i.e., the shares are actually deposited into your brokerage account), they are considered a "perquisite" or a benefit provided by your employer.
- Taxable Value: The Fair Market Value (FMV) of the shares on the vesting date.
- Tax Rate: Taxed at your normal income tax slab rate.
- How it's paid: Your employer will automatically deduct TDS on this amount. Often, they do a "sell-to-cover," meaning they immediately sell a portion of your vested shares to pay the TDS to the Indian government.
- Where it shows up: This value is included in your Form 16 under "Perquisites."
(For ESPPs, the discount you receive on the purchase price is taxed as a perquisite).
Stage 2: Selling (Taxed as Capital Gains)
When you eventually sell the shares, any profit you make above the vesting FMV is taxed as Capital Gains.
- Purchase Price: The FMV on the vesting date (not zero!).
- Holding Period: Calculated from the vesting date to the sale date. Since these are usually foreign (unlisted in India) shares, the holding period for Long-Term Capital Gains is 24 months.
- Short-Term Capital Gains (STCG): If sold within 24 months, taxed at your slab rate.
- Long-Term Capital Gains (LTCG): If sold after 24 months, taxed at 12.5% (under recent rules) or 20% with indexation, depending on the applicable finance act.
Reporting Foreign Assets (Schedule FA)
This is the most critical compliance step. If you hold shares in a foreign company (even just one share of Amazon or Google), you must declare them in Schedule FA (Foreign Assets) of your ITR.
Failing to report foreign assets can lead to severe penalties under the Black Money Act, even if you have paid all your taxes.
How LastMinute ITR helps Filing ITR-2 with foreign stocks is complex. You have to convert USD to INR using specific SBI TT Buying Rates for different dates. LastMinute ITR guides you on what data you need from your E*TRADE or Charles Schwab statements so you can confidently fill out Schedule CG and Schedule FA on the tax portal.
Start with LastMinute ITR · import your broker statements · fix an AIS mismatch.
What you should do
- Use the vesting-date FMV (already taxed as salary) as your cost when computing capital gains on sale.
- Declare every foreign holding in Schedule FA, even shares you never sold.
- Keep your Form 16 perquisite breakup and broker statements together.
Common mistake
Treating cost as zero on sale. The shares were already taxed as salary at vesting. Using zero cost double-taxes you. Your cost is the vesting-date FMV, not nil.