RSU Taxation for US-India Work Transitions: Complete Tax Guide

Latest updates effective from FY 2025-26 under the new Income Tax Bill 2025

If you've worked in both the US and India with RSU grants, you're facing one of the most complex tax scenarios in cross-border compliance. Here's exactly how RSU taxation works when you've earned equity across both jurisdictions.

The Dual-Country RSU Challenge

The Core Problem: Your RSUs were granted based on US work, but some vest after you've returned to India. Each jurisdiction wants to tax "their portion", but the calculation isn't straightforward.

What Makes This Complex:

• US taxes based on vesting date and work location during vesting period

• India taxes based on your residency status when RSUs vest

• New Income Tax Bill 2025 changes the calculation starting FY 2025-26

RSU Taxation Framework: US Work Period

While You Were a US Tax Resident

At Grant: No tax in either country (RSUs have zero value at grant)

At Vesting:

• US Treatment: Fair Market Value (FMV) taxed as ordinary income on vesting date

• Withholding: Employer withholds for federal taxes plus state taxes

• Form W-2: Vesting value appears as wages on your W-2

At Sale:

• US Treatment: Capital gains on appreciation from vesting FMV

RSU Taxation Framework: India Work Period

New Income Tax Bill 2025 Changes (Effective FY 2025-26)

New Tax Slabs for RSU Income:

• ₹0 - ₹4 lakh: 0%

• ₹4 - ₹8 lakh: 5%

• ₹8 - ₹12 lakh: 10%

• ₹12 - ₹16 lakh: 15%

• ₹16 - ₹20 lakh: 20%

• ₹20 - ₹24 lakh: 25%

• Above ₹24 lakh: 30%

India's RSU Tax Treatment

At Vesting (if Indian tax resident):

• Salary Income: FMV on vesting date taxed at slab rates above

• TDS: Employer should deduct tax if you're on India payroll (Form 16)

At Sale:

• Capital Gains: Tax on appreciation from vesting FMV

• LTCG: 12.5% flat rate (no indexation), ₹1.25L exemption

Common Scenarios: Transition Timing

Scenario 1: Vest After Returning to India

Situation: You return to India, become Indian tax resident, then RSUs vest

Tax Treatment:

• India: Full vesting value taxed as salary income at slab rates

• Double Taxation: Both countries may tax the same income

Solution: Advance tax planning is necessary

Scenario 2: Vest During RNOR Period

RNOR Advantage:

• Foreign-sourced income not received in India = not taxable in India

• RSU vesting from US employer = potentially foreign-sourced

Planning Opportunity:

• Time your RSU sales during RNOR period

• Significant tax savings vs. ROR status

Scenario 3: RSUs from India Operations

Different Treatment:

• RSUs granted by Indian subsidiary/branch = Indian-sourced income

• Taxed in India (Form 16)

Compliance Requirements

India Compliance

Schedule FA (Foreign Assets):

• Mandatory disclosure of US brokerage accounts holding RSUs

• Penalty: ₹10 lakh per year under Black Money Act

• Must report even if account value is nil

ITR Filing:

• ITR-2: For salary + capital gains

• ITR-3: If you have consulting income alongside

Strategic Planning Opportunities

Timing Your India Return

Before RSU Vesting:

• Complete vesting while US tax resident

• Avoid India slab rate taxation on vesting

• Plan RNOR qualification for future vestings

After RSU Vesting:

• Need careful DTAA planning

• Consider timing with India's new tax slabs

RNOR Optimization

Best Practice:

• Qualify for RNOR status in your return year

• Time RSU sales during RNOR period

Professional Planning Required

The interaction between:

• RNOR vs. ROR timing

• New Income Tax Bill 2025 implications

• India-US tax treaty optimization

• State tax obligations

requires integrated planning across both jurisdictions.

Common Mistakes to Avoid

❌ Assuming Only One Country Taxes RSUs Both US and India may have taxing rights - plan for both

❌ Missing Schedule FA Disclosure ₹10 lakh penalty per year - compliance is mandatory

❌ Poor RNOR Planning Missing RNOR qualification can cost unnecessary taxes

❌ No Documentation Without proper records, you can't claim treaty benefits

Get Expert Cross-Border RSU Planning

RSU taxation across US-India transitions requires specialized expertise in both tax codes, treaty provisions, and strategic timing.

Our cross-border CAs have handled complex RSU scenarios for professionals at Amazon, Google, Microsoft, Meta, and other major tech companies.

Free 15-minute consultation to review your specific RSU situation and optimize your tax strategy.

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Disclaimer: This article provides general information about RSU taxation for educational purposes. Tax laws are complex and change frequently. Always consult with qualified tax professionals for advice specific to your situation. The new Income Tax Bill 2025 provisions mentioned are based on the bill as passed by Parliament and subject to implementation rules.