Equity compensation is two different tax events in many cases: a salary-like perquisite when options vest or are exercised, and a capital gains event when you sell shares. Mixing them creates wrong ITR schedules and AIS mismatches. This article is an overview for employees; cross-border plans need CA and possibly foreign tax credit analysis.
- Perquisite value is typically taxed as salary in the year of allotment/exercise per valuation rules, not at sale.
- Sale triggers capital gains with cost basis tied to FMV and rules for the instrument and holding period.
- Form 12BA and Form 16 often carry perquisite detail; broker statements carry sale detail.
- Foreign brokers and RSUs add FX and reporting complexity, export a clean timeline for your CA.
When shares are allotted on exercise, the difference between fair market value on the relevant date and exercise price is generally taxed as perquisite under salary rules for domestic plans, subject to company type and specific sections.
Payroll may withhold extra TDS in that month, spiking your payslip. That number belongs in salary schedules, not in capital gains until you actually sell.
On sale, compute capital gains using applicable cost of acquisition and holding period rules, listed vs unlisted treatment differs sharply. STT-paid listed sales may fall under 111A/112A when conditions are met; other cases follow different sections.
Match sale proceeds and purchase lots to contract notes. RSU sell-to-cover transactions still need clear lot tracking.
US or other foreign brokers report in foreign currency. You must convert using RBI or notified rules for the relevant dates and may need Schedule FA or foreign asset reporting depending on residential status and holdings.
This is not DIY territory for large balances. Assemble FMV statements, exercise confirmations, sale confirmations, and foreign tax slips for a professional to claim foreign tax credit where allowed.
SalTax writes for salaried taxpayers and professionals in India who want clear explanations, not jargon. Our guides reflect how tax compliance works in practice, including payroll, Form 16, AIS, and filing, but they are educational only. They are not tax, legal, or investment advice. Rules, limits, and forms change with each Finance Act and assessment year. Always confirm the current year on the official Income Tax Department website (incometax.gov.in) and use a Chartered Accountant or qualified tax adviser for your own return, notices, or planning.