Moment guide · FY 2026-27

I got ESOPs or RSUs

When exactly do I pay tax on my stock grants — vesting or sale?

Sec 17(2)(vi)Sec 192(1C)Sec 112ASec 111ASec Rule 128Verified 2026-08-09

2 taxable events usually matter for ESOPs or RSUs: salary perquisite at exercise or vesting, and capital gains at sale. The perquisite is FMV minus what you paid; later sale uses the already-taxed FMV as cost. Eligible 80-IAC startup employees can defer the first event to the earliest specified trigger.

Your legitimate options

Every route the statute actually gives you — with its condition, cap and deadline.

Route	Condition	Cap / deadline
Event 1 — perquisite at exercise/vest	FMV minus what you paid is salary income at slab; TDS applies even if you sell nothing	Eligible 80-IAC startup employees can defer to earliest of sale / exit / 48 months u/s 192(1C)
Event 2 — capital gains at sale	Cost basis = FMV already taxed; listed Indian shares follow 112A/111A; foreign shares are unlisted-asset rules	Foreign RSUs: Schedule FA disclosure mandatory; US tax creditable only via Form 67 filed before the ITR deadline
Timing lever	Exercise in a low-income year to tax the perquisite at a lower slab	Tax is on notional FMV — a later crash doesn't refund it

The #1 trap

Two taxable events, not one — and for foreign RSUs, missing Form 67 kills the foreign tax credit entirely.

The decision path

Follow it top to bottom — the first condition that matches is your answer.

IF FMV exceeds the amount paid at exercise or vesting → treat the difference as salary perquisite at slab and check TDS.
IF the shares are later sold → compute capital gains using the FMV already taxed as cost basis.
IF listed Indian shares are sold → test sections 112A or 111A; IF foreign shares are sold → apply the unlisted-asset rules.
IF the employee qualifies under section 80-IAC → test deferral until the earliest of sale, exit or 48 months under section 192(1C).
IF foreign tax was paid → disclose in Schedule FA and file Form 67 before the ITR deadline for the credit; IF the price later crashes → the earlier notional tax is not refunded. [VERDICT: calendar both events separately.]

Worked example

Karan, software developer

Karan exercises an option for 1,000 shares at ₹40 each when the FMV is ₹100 each. The amount paid is 1,000 × ₹40 = ₹40,000. The FMV is 1,000 × ₹100 = ₹1,00,000. The salary perquisite is ₹1,00,000 minus ₹40,000 = ₹60,000. That ₹60,000 is taxed at slab and TDS can apply even if Karan sells nothing. Karan’s slab depends on his total income, so perquisite tax is ₹60,000 at his marginal rate. Karan later sells all 1,000 shares at ₹130 each. Sale proceeds are 1,000 × ₹130 = ₹1,30,000. The capital-gains cost basis is the FMV already taxed, ₹1,00,000. Capital gain is ₹1,30,000 minus ₹1,00,000 = ₹30,000. If the listed Indian shares qualify as section 112A LTCG, the applicable threshold and rate must be tested; if section 111A STCG applies, the rate is 20%, giving ₹30,000 × 20% = ₹6,000 before surcharge or cess. Karan therefore has two separate computations, not one tax event. If he were an eligible 80-IAC startup employee, he would test deferral to the earliest of sale, exit or 48 months. For foreign RSUs he would also disclose Schedule FA and file Form 67 before the ITR deadline. He preserves the grant statement, exercise confirmation, FMV evidence and sale contract so the cost basis can be reproduced. A final combined tax saved or payable depends on Karan's residence, holding period, slab and any foreign tax paid — bring the grant and sale documents.

Questions people actually ask

Is ESOP tax paid at vesting or sale?

2 taxable events are relevant: section 17(2)(vi) perquisite at exercise or vesting, then capital gains at sale. The second computation uses the FMV already taxed as cost.

How is the ESOP perquisite calculated?

FMV minus the amount paid is the section 17(2)(vi) salary perquisite. It is taxed at slab and TDS can apply even when no shares are sold.

What is the ESOP capital-gains cost?

Section 17(2)(vi) FMV already taxed as perquisite is the cost basis for the later sale. Sale price minus that FMV produces the capital gain.

How long can eligible startup employees defer ESOP tax?

48 months is the outer section 192(1C) endpoint for eligible 80-IAC startup employees; the earliest of sale, exit or 48 months controls.

What must I do for foreign RSUs?

Schedule FA disclosure and Form 67 are required for foreign RSUs. Form 67 must be filed before the ITR deadline for foreign-tax credit.

Foreign RSU / Form 67 helper →Or talk to us about your numbers →

Sections: 17(2)(vi), 192(1C), 112A, 111A, Rule 128 · Last verified 2026-08-09 · Reviewed by Harun Raaj & Associates, Chartered Accountants. Every figure cites the Income-tax Act, 1961 (with ITA 2025 mapping via our section index).