Foreign RSUs: Taxation, Reporting, and Foreign Tax Credit

A note on the law: section numbers here are from the Income tax Act, 1961, the operative law for the current filing cycle. From Tax Year 2026-27 under the Income tax Act, 2025, double taxation relief moves to Sections 159 and 160, and the FTC statement is renumbered Form 44.

This page picks up where ESOPs, RSUs, Gratuity, and Leave Encashment leaves off, that page covers the basic vesting-perquisite mechanics; this one covers what’s genuinely different when the employer granting the RSUs is foreign: real double-taxation exposure, a specific credit mechanism to prevent it, and a mandatory foreign-asset disclosure that applies whether or not you’ve sold anything.

Where the double taxation actually comes from

India taxes the RSU perquisite at vesting regardless of which country the employer sits in. The genuine friction point is dividends and, less commonly, sale proceeds, where the foreign country’s own withholding kicks in on top. Under the India-US DTAA, for instance, dividends from a US company are withheld at 25% at source, down from the standard 30%, provided the correct treaty paperwork, typically Form W-8BEN with the broker, is filed. Without it, the higher rate applies and there’s nothing to reclaim on the Indian side beyond what was actually withheld.

India separately taxes the same dividend income as Income from Other Sources at your slab rate, and the same appreciation as capital gains at sale, cost basis being the FMV already taxed as a perquisite at vesting under Section 49(2AA), preventing that specific piece from being taxed twice. What genuinely can be taxed twice is the foreign withholding on dividends and, in some structures, sale proceeds, unless a credit is claimed.

Foreign Tax Credit: the mechanism that prevents it

Sections 90 and 91, read with Rule 128, let a resident claim credit for foreign tax paid on income also taxed in India. Section 90 applies where India has a DTAA with the country in question, Section 91 covers the case where it doesn’t. The credit is computed as the lower of two figures: the Indian tax attributable to that specific piece of doubly-taxed income, or the actual foreign tax paid, converted to rupees at the SBI telegraphic transfer buying rate on the date of payment.

Two constraints catch people out. FTC can never exceed the Indian tax on that income, it’s a credit against Indian tax, not a source of a net refund. And it must be claimed in the same year the income is offered to tax in India, there’s no carry-forward or carry-back if the foreign and Indian tax years don’t line up, a genuine risk given the US runs a calendar tax year while India runs April to March.

Form 67: file it before the return, not after

Claiming FTC requires filing Form 67 on the e-filing portal, supported by proof of the foreign tax paid, a withholding certificate like the US Form 1042-S, or an equivalent statement from the foreign tax authority. In practice, the department’s processing system treats a missing Form 67 as a missing credit, no Form 67, no credit, even though courts have separately held that filing it late shouldn’t defeat the underlying right to the credit. Don’t rely on that judicial position to justify filing late, file it before your ITR, not as an afterthought.

Schedule FA: mandatory even if you’ve sold nothing

Holding vested foreign shares at all, regardless of whether you’ve sold them, received a dividend, or claimed any FTC, requires disclosure under Schedule FA of the ITR. This sits entirely apart from the FTC question, it’s a reporting obligation, not a tax one, but the consequences for skipping it are the most severe on this page: a penalty of 10 lakh rupees per year of omission under the Black Money Act, a materially harsher regime than an ordinary reporting lapse elsewhere in the Income tax Act.

Foreign brokerage accounts holding these shares need their own disclosure too, not just the shares themselves, and the combination of foreign shares plus a foreign brokerage account is what rules out ITR-1 and ITR-4 entirely, covered in Which ITR Form Applies to You.

Two assumptions that cause real problems

Assuming foreign withholding already covers your Indian liability. It usually doesn’t. US withholding on RSU vesting is often minimal or absent for a non-US-resident employee, while the Indian perquisite tax at vesting is the real, full liability, treating the foreign employer’s payslip deduction as the whole tax story leaves a genuine gap.

Assuming a sell-to-cover transaction reduces the taxable perquisite. It doesn’t, the full FMV at vesting is still the perquisite, selling some shares to fund the tax bill is simply how the cash gets raised, it has no bearing on how much is taxable in the first place.