What are RSUs?
Restricted Stock Units (RSUs) are a type of equity compensation offered by many US-listed companies, such as Amazon, Alphabet, Apple, and Intuit, to their employees as part of their overall compensation package. RSUs represent a promise from the employer to grant the employee a certain number of shares of company stock at a future date, subject to certain conditions.
How do RSUs work?
When an employee is granted RSUs, they do not immediately own the stock. Instead, they receive a promise from the company that they will receive the shares at a later date, typically after a specified vesting period. The vesting period is usually determined by the company and may span several years. During this time, employees may need to meet certain conditions, such as remaining employed with the company.
Upon vesting, employees become the owners of the shares and can choose to sell them or hold onto them as they see fit.
Taxation of RSUs:
In India, RSUs are taxed differently depending on when they are vested and when the shares are sold:
- Vesting: When RSUs vest, they are taxed as perquisites (perks) at the time of vesting. Value of Vested shares is added to employees salary and cooresponding TDS is deducted from cash compensation. When RSUs are added as a part of employee’s compensation package, in-hand salary will be lower than the offered salary.
- Sale: When employees sell the RSU shares, any capital gains (difference between sale price and vesting price) from the sale are subject to capital gains tax in India. The capital gains tax rate depends on whether the shares are held for the short term (less than 3 years) or long term (more than 3 years).
Impact on Resignation:
When an employee resigns from their job, the treatment of RSUs depends on the terms of the grant and the company’s policies. In some cases, employees may forfeit unvested RSUs upon resignation. However, vested RSUs typically remain with the employee, and they retain ownership of the shares.
It’s important for employees to carefully review the terms of their RSU grants and understand the implications of resignation on their RSUs.
In conclusion, RSUs are a valuable form of equity compensation for Indian employees of US-listed companies. By understanding how RSUs work and their tax implications, employees can make informed decisions about their compensation packages and financial futures.
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