Restricted Stock Units Taxation in India: Foreign Tax Credit, Form 67 & Reporting

Summary: The article comprehensively examines the Indian tax treatment of Restricted Stock Units (RSUs) received by resident taxpayers from foreign employers. It explains that RSUs are taxable as salary perquisites at the time of vesting under Section 17(2) and as capital gains upon their subsequent sale, with Section 49(2AA) preventing double taxation by treating the fair market value taxed as salary as the cost of acquisition. The article further analyses the Foreign Tax Credit (FTC) framework under Sections 90 and 91 read with Rule 128, highlighting procedural requirements such as filing Form No. 67 and disclosures under Schedule FSI, Schedule TR, and Schedule FA. Judicial precedents emphasize that delayed filing of Form No. 67 should not defeat the substantive right to FTC. The discussion also underscores the importance of reporting foreign brokerage accounts and overseas assets to avoid consequences under the Black Money Act.

TAXATION OF RESTRICTED STOCK UNITS (RSUs) IN INDIA: FOREIGN TAX CREDIT UNDER SECTIONS 90 AND 91, FORM NO. 67 AND REPORTING REQUIREMENTS UNDER SCHEDULE FSI, SCHEDULE TR AND SCHEDULE FA

Abstract
The increasing prevalence of equity-based compensation arrangements adopted by multinational enterprises has led to a rise in cross-border taxation issues for Indian resident taxpayers. Restricted Stock Units (RSUs), being a popular mode of employee compensation, are frequently subject to taxation both in the source country and in India, thereby resulting in double taxation.

The Income-tax Act, 1961 provides relief against such double taxation through Sections 90 and 91 read with Rule 128 of the Income-tax Rules, 1962. The mechanism for claiming Foreign Tax Credit (FTC) necessitates compliance with Form No. 67 and disclosure requirements under Schedule FSI, Schedule TR and Schedule FA of the Income-tax Return.

This article analyses the taxability of RSUs in India, the framework governing foreign tax credit, procedural aspects relating to Form No. 67, and reporting obligations pertaining to foreign assets and foreign source income.

1. Introduction

Globalization and increasing workforce mobility have transformed employee compensation practices across multinational enterprises. In addition to conventional salary structures, employers now frequently compensate employees through stock-based incentive schemes such as Employee Stock Option Plans (ESOPs), Restricted Stock Units (RSUs), Stock Appreciation Rights (SARs), and Employee Stock Purchase Plans (ESPPs).

Restricted Stock Units represent a promise by the employer to grant shares to employees upon fulfillment of specified vesting conditions. Such compensation structures align employees’ interests with long-term corporate performance and are extensively adopted by multinational corporations.

Since India follows the principle of taxation based on residence, an Indian resident is liable to tax on his global income in accordance with Section 5 of the Income-tax Act, 1961. Consequently, income arising from RSUs granted by foreign companies becomes taxable in India irrespective of the place where such income accrues or is received.

In many cases, taxes are withheld in the source country at the time of vesting or upon receipt of dividend income, thereby exposing the taxpayer to double taxation. Recognizing this hardship, the legislature has provided mechanisms under Sections 90 and 91 of the Act for granting relief from double taxation.

Further, Rule 128 of the Income-tax Rules, 1962 prescribes the procedure for claiming Foreign Tax Credit (FTC) through Form No. 67. Corresponding disclosures are also required to be made in Schedule FSI, Schedule TR and Schedule FA while furnishing the return of income.

In the backdrop of increased reporting requirements and the stringent provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, understanding the taxation and disclosure framework governing RSUs assumes considerable significance.

2. Meaning and Nature of Restricted Stock Units

Restricted Stock Units (RSUs) are a form of equity-based compensation whereby an employer undertakes to transfer a specified number of shares to an employee upon satisfaction of certain vesting conditions. Unlike Employee Stock Options (ESOPs), RSUs do not confer upon the employee an option to purchase shares; instead, shares are automatically allotted on the vesting date.

Generally, vesting is linked to:

• Continuation of employment for a specified period;
• Achievement of performance milestones;
• Fulfilment of organizational targets; or
• Combination of time-based and performance-based conditions.

Upon vesting, the employee becomes entitled to receive shares of the company and acquires beneficial ownership therein.

From a taxation perspective, RSUs give rise to tax implications at two stages:

(a) At the time of vesting

The fair market value of shares allotted is taxable as a perquisite under Section 17(2) of the Income-tax Act, 1961 and is chargeable under the head “Income from Salaries”.

(b) At the time of sale

Subsequent transfer of shares results in capital gains chargeable under Section 45 of the Act.

Thus, RSUs are subjected to taxation twice:

• As salary income at the time of vesting; and
• As capital gains upon eventual sale of shares.

3. Taxability of RSUs at the Time of Vesting

Section 15 of the Income-tax Act provides that salary is taxable on due or receipt basis, whichever is earlier. Further, Section 17(2) includes within the scope of “perquisites” the value of any specified security or sweat equity shares allotted or transferred by the employer either directly or indirectly to an employee.

Accordingly, upon vesting of RSUs, the Fair Market Value (FMV) of shares becomes taxable as salary income.

Perquisite Value

Perquisite Value = Fair Market Value on Vesting Date – Amount Recovered from Employee

The amount so determined is chargeable to tax under the head:

“Income from Salaries”

and is subject to normal slab rates applicable to the employee.

Illustration

Assume that:

• Number of RSUs vested = 100
• Fair Market Value per share = USD 50
• Amount recovered from employee = Nil

Therefore,

Perquisite Value = 100 × USD 50

= USD 5,000

The value shall be converted into Indian Rupees in accordance with Rule 115 of the Income-tax Rules, 1962 and offered to tax as salary income.

In several jurisdictions, including the United States, taxes may be withheld at source on such perquisite income. Consequently, the same income becomes liable to tax both in India and abroad, thereby necessitating relief under Sections 90 or 91.

PART II–TAXATION OF RESTRICTED STOCK UNITS (RSUs) IN INDIA: FOREIGN TAX CREDIT UNDER SECTIONS 90 AND 91, RULE 128, FORM NO. 67 AND REPORTING REQUIREMENTS UNDER SCHEDULE FSI AND SCHEDULE TR

4. Taxability of RSUs at the Time of Sale

While the value of Restricted Stock Units (RSUs) is subjected to tax as a perquisite at the time of vesting, a second incidence of taxation arises upon the subsequent transfer of such shares. Such transfer attracts the provisions relating to capital gains under Chapter IV-E of the Income-tax Act, 1961.

Section 45 provides that any profits or gains arising from the transfer of a capital asset shall be chargeable to income tax under the head “Capital Gains”.

Accordingly, when the employee disposes of the shares acquired pursuant to vesting of RSUs, the difference between the sale consideration and the cost of acquisition is liable to tax as capital gains.

5. Cost of Acquisition under Section 49(2AA)

The Finance Act, 2009 inserted Section 49(2AA) to eliminate the possibility of double taxation on the same amount.

Section 49(2AA) provides that where specified securities or sweat equity shares have been taxed as perquisites under Section 17(2), the Fair Market Value which has been considered for such taxation shall be deemed to be the cost of acquisition of such shares.

Therefore,

Cost of Acquisition = Fair Market Value considered for Perquisite Taxation

This provision ensures that the value already subjected to tax under the head “Salaries” is not taxed again while computing capital gains.

Illustration

Assume:

Particulars	Amount
Number of Shares	100
FMV on Vesting Date	USD 50 per share
Sale Price	USD 70 per share

Step I – Tax at Vesting

Perquisite Income

100 × USD 50 = USD 5,000

Taxable under the head “Salaries”.

Step II – Capital Gains on Sale

Sale Consideration

100 × USD 70 = USD 7,000

Less: Cost of Acquisition (Section 49(2AA))

100 × USD 50 = USD 5,000

Capital Gain

USD 2,000

6. Characterization of Capital Gains

The character of gains depends upon the period of holding of shares.

Accordingly, the gains may be classified as:

(a) Short-Term Capital Gain

Where the holding period is less than the prescribed period.

(b) Long-Term Capital Gain

Where the shares are held for a period exceeding the prescribed threshold.

The nature of the asset, place of listing and applicable provisions determine the taxability and applicable rate of tax.

7. Relief from Double Taxation under Section 90

Section 90 empowers the Central Government to enter into agreements with foreign countries for avoidance of double taxation.

Section 90(2) further provides that where the provisions of the Act and the agreement are both applicable, the assessee may opt for whichever provisions are more beneficial.

India has entered into Double Taxation Avoidance Agreements (DTAAs) with several countries, including:

• United States of America;
• United Kingdom;
• Canada;
• Australia;
• Singapore;
• Germany etc.

The purpose of such agreements is:

• Avoidance of double taxation;
• Prevention of fiscal evasion;
• Exchange of information;
• Promotion of international trade and investment.

Foreign Tax Credit under Section 90

Where taxes have been paid outside India on income which is also taxable in India, the assessee is entitled to claim Foreign Tax Credit.

The amount of credit shall be restricted to the lower of:

(a) Foreign tax paid; or

(b) Indian tax payable on such income.

Illustration

Particulars	Amount
Foreign Income	USD 10,000
Tax Paid in USA	USD 2,000
Indian Tax attributable to such income	USD 2,500

Foreign Tax Credit allowable = Lower of:

• USD 2,000; or
• USD 2,500

Hence,

FTC admissible = USD 2,000.

8. Unilateral Relief under Section 91

Section 91 grants relief where no Double Taxation Avoidance Agreement exists between India and the foreign country.

Relief is available if:

1. The taxpayer is resident in India;

2. Income accrued outside India;

3. Tax has been paid in the foreign jurisdiction;

4. No agreement under Section 90 exists.

The deduction shall be calculated at the lower of:

• Indian rate of tax; or
• Foreign country’s rate of tax.

Thus, Section 91 provides unilateral relief even in the absence of a DTAA.

9. Rule 128 and Foreign Tax Credit

Rule 128 of the Income-tax Rules, 1962 lays down the mechanism for granting Foreign Tax Credit.

Salient Features

(i) Year of Allowability

Credit shall be available in the year in which the corresponding income is offered to tax in India.

(ii) Country-wise and Source-wise Computation

FTC shall be computed separately for each source of income arising from a particular country.

(iii) Restriction of Credit

Credit shall not exceed the Indian tax attributable to such income.

(iv) Disputed Taxes

No credit shall be available in respect of disputed foreign taxes.

(v) Components Eligible

FTC is available against:

• Income Tax;
• Surcharge;
• Health and Education Cess.

10. Form No. 67

Rule 128(9) requires furnishing of Form No. 67 electronically for claiming Foreign Tax Credit.

The Form broadly consists of two parts.

Part A

Statement of Foreign Income and Tax Credit claimed.

Particulars required

• Country Code;
• Taxpayer Identification Number (TIN);
• Nature of Income;
• Relevant DTAA Article;
• Section under which relief is claimed;
• Foreign Income;
• Foreign Tax Paid;
• Indian Tax payable;
• Amount of FTC claimed.

Part B

Details regarding:

• Refund of foreign taxes;
• Additional tax liability arising due to such refund.

Documents generally maintained

• Form W-2;
• Form 1042-S;
• Foreign tax returns;
• Salary certificates;
• Tax payment challans;
• Brokerage statements.

11. Judicial Pronouncements

Brinda Rama Krishna v. ITO [2022] 135 taxmann.com 358 (Bang. Trib.)

The Bangalore Bench of the Tribunal held that delayed filing of Form No. 67 cannot defeat the substantive right of claiming Foreign Tax Credit.

The Tribunal observed that procedural requirements should not override substantive benefits available under the statute.

42 Hertz Software India Pvt. Ltd. v. ACIT

The Tribunal reiterated that Form No. 67 is directory in nature and denial of Foreign Tax Credit merely on account of procedural delay would be contrary to the legislative intent underlying Section 90.

12. Conclusion

The second stage of taxation of RSUs arises upon sale of shares and is governed by the capital gains provisions of the Income-tax Act, 1961. Section 49(2AA) ensures that the amount already taxed as salary does not suffer double taxation.

Further, Sections 90 and 91 read with Rule 128 provide relief against international double taxation through the mechanism of Foreign Tax Credit.

To avail such relief, taxpayers should maintain adequate documentation and ensure timely compliance with Form No. 67.

PART-III REPORTING OF FOREIGN SOURCE INCOME, FOREIGN TAX CREDIT AND FOREIGN ASSETS UNDER SCHEDULE FSI, SCHEDULE TR AND SCHEDULE FA OF THE INCOME-TAX RETURN

13. Introduction

With the growing prevalence of cross-border employment and overseas investments, disclosure requirements under the Income-tax Return have assumed significant importance. Apart from claiming Foreign Tax Credit (FTC) through Form No. 67, taxpayers are also required to furnish details of foreign income, tax relief and foreign assets in various schedules of the return of income.

The reporting framework broadly comprises:

• Schedule FSI (Foreign Source Income);
• Schedule TR (Tax Relief);
• Schedule FA (Foreign Assets).

These schedules are intended to facilitate transparency and ensure consistency between the foreign income offered to tax, the foreign tax credit claimed and the assets held outside India.

Failure to comply with these reporting requirements may result in processing adjustments under Section 143(1), scrutiny proceedings or penal consequences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

14. Schedule FSI – Foreign Source Income

Schedule FSI captures details of income earned outside India and taxes paid thereon.

The information furnished in Schedule FSI forms the basis for claiming relief under Schedule TR.

Information required under Schedule FSI

The following particulars are generally required:

Particulars	Description
Country Code	Country from which income is derived
Taxpayer Identification Number (TIN)	Foreign tax identification number
Head of Income	Salary, Capital Gains, Dividend, Interest, etc.
Relevant DTAA Article	Article under the applicable DTAA
Foreign Income	Income earned outside India
Tax Paid Outside India	Foreign taxes deducted or paid
Indian Tax Payable	Tax attributable in India

Common Incomes Reported in Schedule FSI

(a) Salary Income

• Foreign salary;
• RSU perquisite income;
• ESOP income.

(b) Income from Other Sources

• Dividend from foreign companies;
• Interest on overseas deposits.

(c) Capital Gains

• Sale of foreign shares;
• Disposal of RSUs;
• Sale of overseas securities.

(d) Business Income

• Income derived from foreign establishments.

Importance of Schedule FSI

Schedule FSI serves as the foundation for:

• Form No. 67;
• Schedule TR;
• Foreign Tax Credit computation.

Accordingly, figures reported in these schedules should be capable of reconciliation.

15. Schedule TR – Tax Relief

Schedule TR contains details regarding relief claimed under:

• Section 90;
• Section 90A;
• Section 91.

The schedule reflects the amount of Foreign Tax Credit claimed in the return.

Reporting Structure of Schedule TR

The following particulars are generally required:

Particulars	Description
Country Code	Country in respect of which relief is claimed
Relevant Section	Section 90, 90A or 91
DTAA Article	Relevant treaty provision
Foreign Tax Paid	Taxes paid abroad
Tax Relief Claimed	Amount of FTC claimed

Reconciliation Requirement

Schedule TR should reconcile with:

1. Form No. 67;

2. Schedule FSI;

3. Tax computation statement.

Any inconsistency may result in adjustment under Section 143(1).

16. Schedule FA – Foreign Assets

Schedule FA seeks disclosure of foreign assets held by Resident and Ordinarily Resident (ROR) taxpayers.

The schedule is intended to ensure comprehensive reporting of offshore assets and foreign financial interests.

Applicability of Schedule FA

Schedule FA applies only to:

Resident and Ordinarily Resident (ROR)

and is not applicable to:

• Non-Residents (NR); and
• Resident but Not Ordinarily Residents (RNOR).

Categories of Assets Reportable in Schedule FA

Foreign Depository Accounts

This includes:

• Savings accounts;
• Current accounts;
• Time deposits maintained abroad.

Information required

• Name and address of institution;
• Country code;
• Account number;
• Peak balance during the year;
• Closing balance;
• Income accrued.

Foreign Custodial Accounts

These include brokerage and depository accounts maintained outside India.
Examples include:

• Charles Schwab;
• Fidelity Investments;
• Morgan Stanley;
• Interactive Brokers.

Information required

• Name and address of institution;
• Country code;
• Account number;
• Peak value;
• Closing balance;
• Income derived.

Equity and Debt Interest in Any Entity

Foreign shares acquired under:

• RSUs;
• ESOPs;
• ESPPs;

are generally reportable under this category.

Particulars required

Particulars

Name and address of entity

Country code

Nature of interest

Initial investment

Peak value during the year

Closing balance

Income derived

Cash Value Insurance Contracts and Annuity Contracts

Particulars required include:

• Name of insurer;
• Country code;
• Policy number;
• Surrender value;
• Income accrued.

Any Other Capital Asset

This category covers:

• Foreign mutual funds;
• Overseas bonds;
• Real estate situated outside India;
• Other capital assets held abroad.

17. Reporting of RSUs and Foreign Brokerage Accounts

Employees receiving RSUs from foreign companies generally maintain brokerage accounts for holding such shares.

Accordingly:

Foreign Brokerage Account

Reportable under:

“Foreign Custodial Account”

Shares allotted pursuant to RSUs

Reportable under:

“Equity and Debt Interest in Any Entity”

Failure to disclose these assets may attract consequences under the Black Money Act.

18. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

The Black Money Act, 2015 introduced stringent provisions to tackle non-disclosure of foreign assets.

Consequences of Non-Disclosure

Tax

Undisclosed foreign income and assets are taxable at:

30%

Penalty

Penalty equal to:

Three times the amount of tax.

Prosecution

In specified cases, imprisonment extending up to ten years may also be attracted.

19. Practical Illustration

Mr. X, being a Resident and Ordinarily Resident individual, receives RSUs from a US parent company.

During FY 2025-26

Perquisite Value of RSUs:

USD 10,000

US Tax Withheld:

USD 2,000

Indian Tax attributable:

USD 2,500

Further, Mr. X holds the shares through a Charles Schwab brokerage account.

Compliance Requirements

Step 1

Offer USD 10,000 to tax under the head “Salaries”.

↓

Step 2

File Form No. 67.

↓

Step 3

Disclose foreign income in Schedule FSI.

↓

Step 4

Claim FTC of USD 2,000 under Schedule TR.

↓

Step 5

Report:

• Charles Schwab account under Foreign Custodial Accounts; and
• Shares under Equity and Debt Interest in Any Entity in Schedule FA.

20. Practical Compliance Matrix

Particulars	Relevant Form/Schedule
Foreign Salary Income	Schedule FSI
RSU Perquisite Income	Schedule FSI
Foreign Tax Credit	Form No. 67
Relief under Section 90/91	Schedule TR
Brokerage Account	Schedule FA
Foreign Shares	Schedule FA
Dividend Income	Schedule FSI
Capital Gains on Sale of Shares	Schedule FSI

21. Conclusion

In an era characterized by increasing international mobility and global investments, compliance relating to foreign income and foreign assets has acquired considerable importance. Taxpayers receiving Restricted Stock Units or deriving income from overseas investments must ensure proper disclosure under Schedule FSI, Schedule TR and Schedule FA.

The figures reported in these schedules should be consistent with Form No. 67 and supported by documentary evidence. Given the stringent consequences under the Black Money Act, accurate and timely compliance assumes paramount importance.

References

1. Income-tax Act, 1961.

2. Income-tax Rules, 1962.

3. Rule 128 of the Income-tax Rules.

4. Form No. 67.

5. Instructions to Income-tax Return Forms.

6. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

7. CBDT Circular No. 2/2021 dated 09 March 2021.

This Part III is drafted in the style generally followed by Taxmann, AIFTP Journal, and The Chartered Accountant, and together with Parts I and II, forms a comprehensive professional article on taxation and reporting of RSUs in India.
 
PART IV–JUDICIAL DEVELOPMENTS RELATING TO FOREIGN TAX CREDIT, RULE 128 AND FORM NO. 67: AN ANALYSIS OF EMERGING CONTROVERSIES

22. Introduction

The framework governing Foreign Tax Credit (FTC) under Sections 90 and 91 of the Income-tax Act, 1961, read with Rule 128 of the Income-tax Rules, 1962, has witnessed considerable litigation in recent years. A recurring issue before appellate authorities has been whether procedural non-compliances, particularly delay in filing Form No. 67, can deprive a taxpayer of the substantive right to claim relief from double taxation.

With increasing cross-border employment and overseas investments, judicial authorities have consistently emphasized that procedural requirements should not override substantive rights conferred by the statute.

This part examines important judicial precedents and emerging controversies relating to Foreign Tax Credit.

23. Nature of Foreign Tax Credit – A Substantive Right

Foreign Tax Credit is intended to mitigate international double taxation and is founded upon:

• Sections 90 and 91 of the Income-tax Act, 1961;
• Double Taxation Avoidance Agreements;
• Rule 128 of the Income-tax Rules, 1962.

The legislative intent underlying these provisions is to ensure that the same income is not taxed twice.

Accordingly, appellate authorities have generally treated FTC as a substantive right rather than a mere procedural concession.

24. Delay in Filing Form No. 67 – Whether Fatal to FTC Claim?

One of the most litigated issues concerns the delayed furnishing of Form No. 67.

Revenue authorities have often denied FTC on the ground that Form No. 67 was not filed within the prescribed time.

The controversy revolves around the question:

Whether delay in filing Form No. 67 can defeat the substantive right of claiming Foreign Tax Credit?

Various judicial authorities have answered the question in favour of the assessee.

25. Brinda Rama Krishna v. ITO [2022] 135 taxmann.com 358 (Bangalore Tribunal)

Facts

The assessee claimed Foreign Tax Credit in respect of taxes paid abroad.

However, Form No. 67 was furnished after filing the return of income.

The Assessing Officer denied the credit on the ground that Rule 128(9) had not been complied with.

Issue

Whether delayed filing of Form No. 67 disentitles the assessee from claiming Foreign Tax Credit?

Held

The Bangalore Bench of the Income Tax Appellate Tribunal held that:

• Rule 128 is procedural in nature;
• Sections 90 and 91 confer substantive rights;
• Procedural provisions cannot override statutory provisions.

Accordingly, Foreign Tax Credit could not be denied merely because Form No. 67 was furnished belatedly.

Ratio Decidendi

Procedural requirements cannot extinguish substantive rights granted under Sections 90 and 91 of the Income-tax Act, 1961

26. 42 Hertz Software India Pvt. Ltd. v. ACIT

The Tribunal reiterated that:

• Rule 128 is directory and not mandatory;
• Delay in furnishing Form No. 67 cannot result in denial of Foreign Tax Credit;
• Double taxation relief is a substantive entitlement.

The decision further strengthened the principle laid down in Brinda Rama Krishna.

27. Importance of Rule 128

Rule 128 prescribes the mechanism for computation and grant of Foreign Tax Credit.

However, being delegated legislation, the Rule cannot override:

• Section 90;
• Section 90A;
• Section 91.

Accordingly, where conflict exists between:

The Act and the Rules

the provisions of the Act prevail.

This principle flows from settled jurisprudence that subordinate legislation cannot travel beyond the parent statute.

28. CBDT Circular No. 2/2021 dated 09 March 2021

The Central Board of Direct Taxes issued Circular No. 2/2021 clarifying various issues relating to Rule 128.

The Circular recognized that:

• FTC shall be available in the year in which corresponding income is offered to tax in India;
• Credit shall be restricted to Indian tax attributable to such income;
• FTC shall be computed country-wise and source-wise.

The Circular sought to provide administrative clarity regarding implementation of Rule 128

29. Principle that DTAA Overrides Domestic Law

Section 90(2) provides that where a Double Taxation Avoidance Agreement exists, the assessee shall be entitled to apply whichever provisions are more beneficial.

Thus:

Treaty provisions override domestic law to the extent they are beneficial to the taxpayer.

This principle has been repeatedly affirmed by judicial authorities.

30. Article 25 of the India-USA DTAA

Article 25 of the India-US Double Taxation Avoidance Agreement deals with elimination of double taxation.

It provides that:

• India shall allow credit for taxes paid in the United States;
• Such credit shall be subject to the limitations prescribed under Indian law.

Therefore, where RSUs granted by a US parent company suffer tax in the United States and are also taxable in India, relief may be claimed under Article 25 read with Section 90 and Rule 128.

31. Practical Issues in RSU Taxation

Several practical challenges arise in the taxation of RSUs.

(i) Timing Differences

Tax may be deducted in the foreign country in one year while the corresponding income may become taxable in India in another year.

This often leads to:

• FTC mismatches;
• Difficulty in reporting under Schedule FSI and Schedule TR.

(ii) Foreign Exchange Conversion

Rule 115 prescribes conversion into Indian currency.

Differences in exchange rates may result in:

• Variations in income figures;
• Computational differences in FTC.

(iii) Brokerage Accounts

Taxpayers often fail to disclose:

• Charles Schwab accounts;
• Fidelity accounts;
• Morgan Stanley accounts.

Such non-disclosure may expose the taxpayer to proceedings under the Black Money Act.

(iv) Dividend Reinvestment Plans

Reinvested dividends are taxable and require disclosure under:

• Schedule FSI;
• Schedule FA.

(v) Sale of Foreign Shares

Capital gains on sale of RSUs are frequently omitted from reporting.

Such gains should be disclosed under:

• Capital Gains Schedule;
• Schedule FSI.

32. Best Practices for Taxpayers

Taxpayers receiving RSUs should maintain:

Documentation

• Form W-2;
• Form 1042-S;
• Brokerage statements;
• Foreign tax returns;
• Salary slips;
• Tax payment certificates.

Reconciliation Statement
A reconciliation should be maintained between:

• Form No. 67;
• Schedule FSI;
• Schedule TR;
• Schedule FA;
• Foreign tax documents.

Timely Compliance

Taxpayers should:

• File Form No. 67 before filing the return;
• Preserve supporting documents;
• Ensure consistency across disclosures.

33. Emerging Trends

Recent jurisprudence reflects a liberal approach towards Foreign Tax Credit.

Courts and Tribunals have increasingly recognized that:

1. FTC is a substantive right;

2. Rule 128 is procedural in nature;

3. Delayed filing of Form No. 67 should not defeat legitimate claims;

4. Treaty benefits deserve liberal interpretation.

This approach promotes the underlying objective of avoiding double taxation.

34. Conclusion

The jurisprudence surrounding Foreign Tax Credit demonstrates a clear judicial inclination towards protecting substantive rights of taxpayers. The decisions rendered in Brinda Rama Krishna and other cases reinforce the principle that procedural requirements cannot override statutory entitlements.

With increasing globalization and cross-border compensation structures, issues relating to RSUs, foreign tax credit and disclosure of foreign assets are expected to assume greater significance. Taxpayers and professionals must therefore ensure proper documentation, timely compliance and consistency in reporting to avoid disputes and unnecessary litigation.

References

1. Income-tax Act, 1961.

2. Income-tax Rules, 1962.

3. Rule 128 of the Income-tax Rules.

4. CBDT Circular No. 2/2021 dated 09 March 2021.

5. Brinda Rama Krishna v. ITO [2022] 135 com 358 (Bangalore Tribunal).

6. 42 Hertz Software India Pvt. Ltd. v. ACIT.

7. India-USA Double Taxation Avoidance Agreement.

8. OECD Model Tax Convention.

9. Kanga & Palkhivala’s Law and Practice of Income Tax.

PART V– PRACTICAL CASE STUDIES, COMPARATIVE ANALYSIS OF SECTIONS 90 AND 91 AND PROFESSIONAL PERSPECTIVE ON TAXATION OF RSUs IN INDIA

35. Introduction

The preceding parts of this article discussed the taxation of Restricted Stock Units (RSUs), Foreign Tax Credit mechanism under Rule 128, Form No. 67 and disclosure requirements under Schedule FSI, Schedule TR and Schedule FA. However, from a practitioner’s standpoint, practical challenges often arise in the implementation of these provisions.

This concluding part attempts to address such practical issues through case studies, comparative analysis of Sections 90 and 91 and a professional perspective on cross-border taxation.

36. Comparative Analysis of Sections 90 and 91

Particulars	Section 90	Section 91
Nature of Relief	Bilateral Relief	Unilateral Relief
Requirement of DTAA	Necessary	Not Necessary
Source of Right	DTAA read with Income-tax Act	Income-tax Act
Availability	Countries having DTAA with India	Countries with which India has no DTAA
Computation	As per DTAA and Rule 128	Lower of Indian Rate and Foreign Rate
Relevant Provision	Section 90(2)	Section 91
Treaty Benefit Available	Yes	No
Common Examples	USA, UK, Canada, Australia	Countries having no DTAA

37. Case Study I – Taxation of RSUs at Vesting

Facts

Mr. X, a Resident and Ordinarily Resident individual, receives 100 RSUs from the US parent company.

FMV on vesting date = USD 100 per share

Amount recovered from employee = Nil

US tax withheld = USD 2,500

Taxability in India

Perquisite Value

100 × USD 100

= USD 10,000

Taxable under:

“Income from Salaries”

under Section 17(2).

Foreign Tax Credit

Assume:

Indian tax attributable = USD 3,000

US taxes withheld = USD 2,500

FTC admissible :

Lower of:

• USD 2,500
• USD 3,000

Therefore,

FTC available = USD 2,500.

38. Case Study II – Sale of RSUs

Assume that the employee sells the shares after one year.

Sale Price

USD 130 per share

Total Sale Consideration

USD 13,000

Cost of Acquisition

Under Section 49(2AA):

100 × USD 100

= USD 10,000

Capital Gains

USD 13,000 – USD 10,000

= USD 3,000

Such gains shall be chargeable under the head:

“Capital Gains”

and shall also require reporting under Schedule FSI.

39. Case Study III – Dividend from Foreign Shares

Mr. X receives dividend of USD 500 from the US company.

US withholding tax = USD 125

Indian tax attributable = USD 150

FTC allowable:

Lower of:

• USD 125
• USD 150

Hence,

FTC available = USD 125.

40. Compliance Checklist for Tax Professionals

A Chartered Accountant handling cases involving foreign income should ensure:

A. Documentation

Maintain:

• Form W-2;
• Form 1042-S;
• Foreign tax returns;
• Salary certificates;
• Broker statements;
• Tax payment certificates.

B. Reconciliation

Figures reported in:

• Form No. 67;
• Schedule FSI;
• Schedule TR;
• Schedule FA;

should reconcile with:

• Form 16;
• Capital Gains Statement;
• Brokerage Reports;
• Foreign Tax Documents.

C. Foreign Asset Reporting

Ensure reporting of:

Foreign Brokerage Accounts

Examples:

• Charles Schwab;
• Fidelity;
• Morgan Stanley;
• Interactive Brokers.

under:

Foreign Custodial Accounts.

Shares held outside India

Report under:

Equity and Debt Interest in Any Entity.

Foreign Bank Accounts

Report under:

Foreign Depository Accounts.

41. Common Errors Observed in Practice

(i) Failure to File Form No. 67

Many taxpayers claim Foreign Tax Credit without furnishing Form No. 67.

This frequently results in adjustments under Section 143(1).

(ii) Mismatch Between Schedule FSI and Schedule TR

Differences between:

• Foreign income disclosed; and
• Tax relief claimed

often trigger notices.

(iii) Non-reporting of Brokerage Accounts

Employees receiving RSUs often fail to disclose:

• Morgan Stanley accounts;
• Charles Schwab accounts;
• Fidelity accounts.

Such non-disclosure may attract consequences under the Black Money Act.

(iv) Omission of Dividend Income

Dividend reinvestment plans are frequently overlooked.

However, dividend income remains taxable and reportable under:

• Schedule FSI;
• Schedule FA.

(v) Incorrect Cost of Acquisition

Taxpayers sometimes consider purchase price instead of FMV adopted for perquisite taxation.

Section 49(2AA) specifically provides that:

FMV considered under Section 17(2) shall be deemed to be the cost of acquisition.

42. Professional Perspective

Global mobility and cross-border compensation structures are expected to increase significantly in the coming years. Consequently, issues relating to:

• RSUs;
• ESOPs;
• Foreign Tax Credit;
• Schedule FA reporting;
• Black Money Act compliance;

will become increasingly relevant.

Professionals advising clients should adopt a holistic approach by ensuring:

1. Proper taxability analysis;

2. Timely filing of Form No. 67;

3. Reconciliation between Form No. 67 and ITR schedules;

4. Proper reporting of foreign assets;

5. Maintenance of adequate documentation.

43. Way Forward

The increasing volume of litigation concerning Foreign Tax Credit highlights the need for:

• Simplification of Rule 128;
• Integration of Form No. 67 with Income-tax Return utilities;
• Automated reconciliation between Form No. 67 and Schedule FSI/Schedule TR;
• Greater clarity regarding treatment of delayed filing.

Such measures would reduce litigation and facilitate ease of compliance.

44. Conclusion

Restricted Stock Units have emerged as an integral component of compensation structures adopted by multinational corporations. While such arrangements promote employee participation and long-term value creation, they also introduce significant complexities in taxation and compliance.

Sections 90 and 91 of the Income-tax Act, 1961, read with Rule 128 of the Income-tax Rules, 1962, seek to mitigate international double taxation through the mechanism of Foreign Tax Credit. However, the efficacy of these provisions depends upon meticulous compliance with Form No. 67 and accurate disclosures under Schedule FSI, Schedule TR and Schedule FA.

Recent judicial developments have reinforced the principle that procedural requirements should not defeat substantive rights. Nevertheless, taxpayers and professionals must exercise due diligence in maintaining documentation and ensuring consistency in reporting.

As cross-border compensation structures continue to evolve, an integrated understanding of substantive provisions, procedural requirements and judicial developments will be indispensable for tax professionals and taxpayers alike.

Bibliography and References

Statutes

1. Income-tax Act, 1961.

2. Income-tax Rules, 1962.

3. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Circulars

4. CBDT Circular No. 2/2021 dated 09 March 2021.

Judicial Pronouncements

5. Brinda Rama Krishna v. ITO [2022] 135 com 358 (Bangalore Tribunal).

6. 42 Hertz Software India Pvt. Ltd. v. ACIT.

International Materials

7. India-USA Double Taxation Avoidance Agreement.

8. OECD Model Tax Convention.

Commentaries

9. Kanga & Palkhivala’s Law and Practice of Income Tax.

10. Chaturvedi and Pithisaria’s Income Tax Law.

11. A. C. Sampath Iyengar’s Law of Income Tax.