So I have the shares that vested and I now have shares sitting in your investment account in the US. What do we do now??? Let us assume I got 100 shares at $10 each on 1 December 2020. Of these, 30 shares are withheld and sold immediately in lieu of taxes. So I now have $700 worth shares on 1 December 2020. My shares reflected as perquisites in my tax computation with a conversion of INR 75. Remember again - My IT computation will show 100shares*$10*INR 75 (as "perquisites received", but in reality I will have only 70 shares in my account.
Regardless what I do with the shares, I have to report the vested shares (which are in my account) in my Income Tax returns as part of a schedule called "Schedule FA" which is Foreign Assets. I will need to report the value of this asset even if I sell it the minute it vests. I have to report the value of 70 shares (I never received the 30 shares that were withheld) as per the schedule requirements. The reporting is quite comprehensive, but easy if you follow the instructions on the form.
If I sell immediately on vesting, I will not have any capital gains on which I need to pay taxes on.
If I sell within 2 years of vesting, I will need to pay tax on Short Term Capital Gains at your marginal tax rate i.e. the rate at which I am paying tax on salary+other income. Let us say, I sell at $12 on 1 December 2021. Ideally I would transfer the money immediately. The USD to INR conversion is INR 80 on the day I bring the money back.
My cost of 70 shares: 70shares*$10*INR75 = INR 52,500
My sale proceeds: 70shares*$12*INR80 =INR 67,200
My capital gain which will be added to my income for tax purposes: INR 14,700
If I sell after 2 years of vesting, I need to pay Long term Capital Gains tax at 20% with Indexation. If I sell 70 shares on 3 Jan 2023 at $11, when exchange rate is 81/-
My cost of 70 shares: INR 52,500. But indexed cost will be higher at INR 57,732. (Refer here on how to calculate indexed cost). Indexation basically adjusts your original cost of purchase for inflation.
My sale proceeds: 70 shares*$11*INR81=INR 63,270
My capital gains on which I need to pay 20% : INR 5,538
If I sold at a net loss either due to lower price, or due to lower exchange rate or both, the same calculation as above can be done and I can include the loss in my IT returns and set it off against other capital gains as applicable.
I hope this helps clarify RSUs and the way we handle the logistics of them. What I have not done is talk about what can one do with vested shares. That clearly is a matter for another blog!!!
What do you do with RSUs when they vest?
Nothing. I let them lie in the account.
I sell them immediately
I hold for 2 years and then sell
I sell on a pre-defined schedule
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