Received RSUs or Foreign Shares? Make Sure You File the Right ITR with Proper Disclosures
Restricted Stock Units (RSUs) have become a common part of compensation for employees working in multinational companies. While RSUs are a valuable benefit, they also come with important tax reporting obligations under Indian tax laws.
Unfortunately, many taxpayers fail to report these foreign assets and incomes correctly, which can lead to notices from the Income Tax Department — and in serious cases, penalties under the Black Money (Undisclosed Foreign Income and Assets) Act.
This article explains why it's essential to report RSUs correctly, which ITR form to use, and how to stay compliant during the tax filing season.
What are RSUs and When Are They Taxable in India?
RSUs are company shares granted to employees as part of their compensation package. These shares are typically subject to a vesting schedule, and once vested, they become taxable in India — even if the shares are not sold immediately.
Here’s how RSUs are taxed:
- At the time of vesting: The value of the vested shares is taxed as salary or perquisite income.
- At the time of sale: Any profit from selling the shares is taxed as capital gains.
- Dividends (if any) from foreign shares are taxed as income from other sources.
All of these are reportable in your income tax return.
The Most Common RSU-Related Mistake in ITR Filing
Last year, many salaried individuals who received RSUs from their foreign employers filed ITR-1, which is meant for resident individuals with income from salary, one house property, and other sources (excluding foreign income and capital gains).
The problem? ITR-1 does not support the disclosure of:
- Foreign assets (such as RSUs)
- Foreign bank accounts held with brokerage platforms
- Foreign income or capital gains
- Schedule FA (Foreign Assets) reporting
As a result, these taxpayers received notices from the Income Tax Department, and some cases were flagged for further investigation under the Black Money Act, due to non-disclosure of foreign assets.
Why Schedule FA is Mandatory
Schedule FA in the income tax return is used to report:
- Foreign equity holdings (including RSUs and ESPPs)
- Foreign bank accounts (e.g., linked to brokerage accounts)
- Foreign income such as dividends or capital gains
If you are a resident and ordinarily resident (ROR) in India, you are mandatorily required to fill Schedule FA if you own or have any interest in assets located outside India.
Which ITR Form Should You Use?
If you have received or hold RSUs or any other foreign asset, or if you have foreign income, you should use:
- ITR-2: If you have capital gains, foreign income, and no business/professional income.
- ITR-3: If you also have income from business or profession.
Filing the wrong form (such as ITR-1) can be considered misreporting and lead to penalties.
Consequences of Non-Disclosure
Non-reporting or under-reporting of foreign assets and income can lead to:
- Scrutiny notices from the Income Tax Department
- Reassessment of your earlier returns
- Penalties up to 300% of the tax amount
- Prosecution under the Black Money Act
The tax department has access to global data through the Automatic Exchange of Information (AEOI) with foreign countries. If you think these assets are not traceable, think again.
How to Report RSUs Correctly
To stay compliant, here’s what you should do:
- Use the correct ITR form (ITR-2 or ITR-3)
- Report perquisite income under the salary head
- Report capital gains (on sale of RSUs)
- Disclose all foreign assets in Schedule FA
- Report dividend income, if any
- Claim relief under DTAA, if you have paid tax in the foreign country
Final Thoughts
Tax compliance is becoming more stringent each year, especially when it comes to foreign assets and income. If you have received RSUs or hold any foreign financial interest, ensure your ITR is filed accurately and completely.
Don’t take Schedule FA lightly — misreporting foreign assets can have serious legal and financial consequences.