14 July 2019
In ITR 2 where should capital gains from selling of vested RSUs be declared? Will they be considered capital gains even if they are sold after 2 years of vesting?
04 June 2020
When you sell the shares, you will pay capital gains tax on any appreciation of the market value from the vesting date when you received the RSU shares. If you sell the shares immediately, before they increase or decrease in value, there will be no capital gains tax due.
Basic Concepts Restricted stock units are a way an employer can grant company shares to employees. The grant is "restricted" because it is subject to a vesting schedule, which can be based on length of employment or on performance goals, and because it is governed by other limits on transfers or sales that your company can impose.
You typically receive the shares after the vesting date. Only then do you have voting and dividend rights. Companies can and sometimes do pay dividend equivlent payouts for unvested RSUs. Unlike actual dividends, the dividends on restricted stock will be reported on your W-2 as wages, unless you made a Section 83(b) election, so they won't be eligible for the lower preferential rate currently available in tax year 2012 on qualified dividends.
Unlike stock options, RSUs always have some value to you, even when the stock price drops below the price on the grant date.
Example: Your company grants you 2,000 RSUs when the market price of its stock is $22. By the time the grant vests, the stock price has fallen to $20. The grant is then worth $40,000 to you before taxes.
Vesting Schedules Vesting schedules are often time-based, requiring you to work at the company for a certain period before vesting can occur.
Example: You are granted 5,000 RSUs. Your graded vesting schedule spans four years, and 25% of the grant vests each year. At the first anniversary of your grant date and on the same date over the subsequent three years, 1,250 shares vest. Once each portion vests, you can sell the shares.
The example above uses a "graded" vesting schedule, i.e., the vesting of the grant in serial portions. Vesting schedules can also have "cliff" vesting, in which 100% of the grant vests all at once after you have completed a stated service period. The vesting schedule can also (or instead) be performance-based, e.g., tied to company-specific or stock-market targets.
Most graded-vesting grants have restrictions that lapse over a period of three to five years. In addition to providing for regular vesting, a graded vesting schedule may, alternatively, have varying intervals between vesting dates:
Example: You are granted 20,000 RSUs. One year after the grant date, 25% of the shares vest (5,000). The remainder (15,000) vest every month (625 a month) over the next two years.
At newly public companies, grants made before the initial public offering (IPO) may also require a liquidity event (i.e., the IPO itself) to occur before the shares vest. Once the liquidity event has occurred, the shares vest 180 days later.
Job termination almost always stops vesting. The only exception occurs in certain situations when vesting may be allowed to continue or may even be accelerated (e.g., death, disability, or retirement, depending on your plan and grant agreement).
04 June 2020
Tax impact on RSUs and ESOPs arise only when you sell them. Holding ESOPs or RSUs don't have to reported in your income tax return. They'll be mentioned in the perquisites section of your Form 16.
It's only when you sell these vested stocks and make a profit, that you will need to report this profit in your income tax return.
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