Got Shares in a Foreign Company Through Your Employer? Here’s the Complete Tax Filing Trail You Can’t Ignore

Contents Covered

• Step 1: Understand What Actually Happened
• Step 2: Schedule FA — Reporting the Asset
• Step 3: Schedule FSI — Reporting the Dividend Income
• Step 4: Schedule CG — The Capital Gains Nobody Expects
• Step 5: Form 67 — Claiming Credit for Tax Withheld Abroad
• Putting It All Together — Rohan’s Filing Checklist for AY 2025-26 / AY 2026-27
• Points to Keep in Mind

If you work for an Indian company that is part of a global group — think of Indian arms of US tech firms, or Indian subsidiaries that report to a foreign parent — there’s a good chance you’ve been given RSUs (Restricted Stock Units) or ESOPs (Employee Stock Options) in the foreign parent company, not in the Indian entity. These shares usually land in a demat/brokerage account opened outside India, commonly with platforms like E*Trade, Morgan Stanley at Work, Fidelity, or Charles Schwab.

This single event — shares vesting into a foreign brokerage account — sets off a chain of compliance obligations under Indian tax law that many salaried employees either don’t know about or discover only after the Income Tax Department sends a notice. This post walks through the entire flow, end to end, with a worked example, covering:

• Why this counts as a “foreign asset”
• Schedule FA (Tables A1, A2, A3) — reporting the asset itself
• Schedule FSI — reporting the dividend income
• Schedule CG — reporting capital gains from the “sell-to-cover” shares
• Form 67 — claiming credit for tax withheld abroad
• Common mistakes and practical points to remember

 Step 1: Understand What Actually Happened

When your employer grants you RSUs/ESOPs of the foreign parent, and those shares vest, three things happen in sequence:

1. You become the legal/beneficial owner of shares in a foreign (unlisted-in-India) company. It doesn’t matter that the company may be listed on NASDAQ or NYSE — what matters for Indian tax purposes is that it is a foreign company, held in an account outside India.
2. A foreign custodial/brokerage account is opened in your name (or a sub-account under your employer’s equity plan) at a platform like E*Trade. This account itself is a separate reportable asset.
3. A portion of the shares is typically sold immediately at vesting — this is called “sell-to-cover” — so that enough cash is generated to pay the tax (perquisite tax in India, and sometimes withholding tax abroad) that arises the moment RSUs vest. This sale creates a capital gains event, however small.

So a single vesting event actually creates: an asset to disclose, income to report, and a capital gain to compute. Let’s build an example.

Worked Example: Rohan’s RSU Vesting

Rohan works at the Indian subsidiary of “GlobalTech Inc.”, a US-listed company. As part of his compensation, GlobalTech grants him RSUs of the US parent.

• 15 March 2025: 100 RSUs vest. Fair market value on vesting date = $50/share → total value = $5,000.
• This $5,000 is treated as a perquisite under Section 17(2) and added to Rohan’s Indian salary income in FY 2024-25, taxed at his slab rate. His employer withholds this as TDS on salary (via Form 16), because the employer is obligated to deduct tax on the perquisite value even though the “salary” landed as shares, not cash.
• To fund this incremental tax (and sometimes a small US withholding), GlobalTech’s plan administrator (E*Trade) automatically sells 30 out of the 100 vested shares on the vesting date itself — this is the “sell-to-cover” mechanism.
• The remaining 70 shares sit in Rohan’s E*Trade demat/brokerage account.
• Later, in December 2025, GlobalTech pays a dividend of $1 per share. Rohan receives dividend on his 70 held shares = $70, and the US broker withholds 25% tax at source under the India-US DTAA = $17.50 withheld, $52.50 credited to his account.
• In February 2026, Rohan sells 20 more shares voluntarily at $60/share to book some profit.

Now let’s see what Rohan needs to declare, and where.

Step 2: Schedule FA — Reporting the Asset

Schedule FA applies to every Resident and Ordinarily Resident (ROR) taxpayer who, at any time during the relevant period, held an asset outside India, had signing authority over a foreign account, or had foreign income. It must be filed even if income is below the taxable limit, and even if the shares were sold before the year-end. ITR-1 and ITR-4 do not carry Schedule FA — Rohan must use ITR-2 (or ITR-3, if he also has business/professional income).

One frequently missed detail: Schedule FA does not follow the Indian financial year. It follows the calendar year (1 January to 31 December) as its reporting period, regardless of which ITR/assessment year you are filing. So RSUs that vest in January–March fall into the next year’s Schedule FA, not the one you might expect.

For Rohan, two separate tables need to be filled:

Table A2 — Foreign Custodial/Depository Account

The ETrade account itself is a foreign custodial account and must be disclosed here — account number, name and address of the institution (ETrade Financial), date account was opened, peak balance during the calendar year, and closing balance, all converted to INR.

Table A3 — Foreign Equity and Debt Interest

The actual GlobalTech shares Rohan holds go here — name and address of the foreign entity, nature of interest (equity shares), date of acquisition (vesting date), initial value of investment, peak value during the year, closing value as on 31 December, and any income (dividend) derived from the asset during the year.

Important nuances:

• Only vested shares are reported. Unvested RSUs are just a right to receive shares in future — they are not “your” asset yet and don’t go into Schedule FA.
• Shares sold during the year still need to be reported, with closing balance shown as the reduced number of shares (or zero, if all were sold), along with the sale proceeds separately noted.
• Currency conversion for all Schedule FA entries must use the SBI TT Buying Rate (TTBR) as on 31 December of the relevant calendar year — not the bank’s card rate, not a random online converter. Mismatches here are a common trigger for scrutiny.
• A very common error: filling only Table A3 (the shares) and forgetting Table A2 (the brokerage account holding those shares). Both are mandatory.

 Step 3: Schedule FSI — Reporting the Dividend Income

The $70 dividend Rohan received is foreign-sourced income and is taxable in India as “Income from Other Sources,” in the year it is credited, not necessarily when it hits his Indian bank account. This goes into Schedule FSI (Foreign Source Income), where he reports, country-wise:

• Country code (United States)
• Nature of income (dividend)
• Amount of income earned outside India (converted to INR)
• Tax payable on this income in India
• Tax already paid/deducted outside India (the $17.50 withheld)
• The DTAA article under which relief is claimed (Article 10 of the India-US DTAA, dividends)
• Amount of relief claimed

The dividend also needs to be added to Rohan’s total taxable income under “Income from Other Sources” in the main ITR computation — Schedule FSI doesn’t replace that, it supports the foreign tax credit claim tied to it.

 Step 4: Schedule CG — The Capital Gains Nobody Expects

This is the part most RSU holders overlook: the sell-to-cover sale of 30 shares at vesting is a taxable sale, even though Rohan never “chose” to sell — the plan administrator did it automatically to fund taxes. The Income Tax Department treats this exactly like any other sale by the employee.

For Rohan:

• Cost basis of these shares = the perquisite value already taxed as salary income, i.e., $50/share (the FMV on vesting date). This is important — his cost isn’t zero, it’s the value already offered to tax as salary.
• Sale price = whatever E*Trade actually sold the shares for at vesting (say $50/share, roughly the same day) = negligible or small gain/loss.
• Since the shares were held for a few minutes/hours (same-day sell-to-cover), this is a short-term capital gain, taxed at Rohan’s slab rate (foreign shares don’t get the concessional listed-equity rates that apply to Indian stock-exchange-traded shares, because these are unlisted-in-India, foreign-listed shares).
• The February 2026 sale of 20 more shares at $60/share (bought effectively at $50 vesting-date value) creates a further short-term or long-term gain depending on the holding period from vesting date to sale date (long-term if held over 24 months, since these are unlisted shares for Indian tax purposes).

Both these transactions go into Schedule CG, under the “shares in a company other than a company in which public are substantially interested / foreign shares” category, with proper computation of holding period, cost, sale consideration, and resultant gain, converted to INR using the appropriate rates prescribed under Rule 115.

 Step 5: Form 67 — Claiming Credit for Tax Withheld Abroad

Rohan had $17.50 withheld in the US on his dividend. Without action, he would be taxed on this dividend again in India — classic double taxation. To claim relief under the India-US DTAA (Section 90), he must file Form 67.

Key points on Form 67:

• It must be filed online, before filing the ITR itself (practically, before/along with return filing), and — as per Rule 128, amended in 2022 — it can be filed any time up to the end of the relevant assessment year, even if that is after the ITR due date, as long as the original or belated return itself was filed within the Section 139(1)/139(4) timelines.
• Required attachments: a certificate/statement from the foreign broker or tax authority evidencing tax deducted (E*Trade’s tax statement or 1042-S equivalent works), and proof of the amount and nature of income.
• The credit allowed is the lower of: (a) tax actually paid/withheld abroad, or (b) the tax payable on that same income in India. Any excess foreign withholding beyond what the DTAA rate permits is not creditable.
• Courts and tribunals (Bangalore ITAT in Brinda Rama Krishna, Mumbai ITAT in Tabassum Inamdar, and others) have repeatedly held that a delay in filing Form 67 is a procedural lapse and shouldn’t by itself defeat a substantive DTAA right — but you should never rely on litigation to fix a filing gap. File it on time.
• Form 67 numbers (income and tax) must tie back to what you’ve reported in Schedule FSI. Mismatches between the two are an easy red flag for the CPC’s automated processing.

Putting It All Together — Rohan’s Filing Checklist for AY 2025-26 / AY 2026-27

He must file ITR-2 (assuming no business income), well within the due date, and submit Form 67 before the end of the relevant assessment year.

Points to Keep in Mind

1. Reporting is mandatory even with zero tax impact. Even if the dividend is negligible or the account has a token balance, disclosure in Schedule FA is compulsory for an ROR. Non-disclosure — even of assets bought from fully disclosed, already-taxed income — can attract penalties up to ₹10 lakh per year under the Black Money Act, separate from any income-tax demand.
2. Only RORs (Resident and Ordinarily Resident) need to file Schedule FA. If you qualify as “Resident but Not Ordinarily Resident” (RNOR) or Non-Resident in a given year (common for people who’ve recently returned to India), this obligation doesn’t apply for that year — but check your residential status carefully each year, as it can change.
3. Schedule FA runs on the calendar year, not the financial year. This trips up almost everyone the first time.
4. Use SBI TTBR, not any other exchange rate, for Schedule FA conversions, and the rates prescribed under Rule 115 for capital gains computation. Consistency matters — mismatched rates across schedules invite scrutiny.
5. Sell-to-cover is a real sale for tax purposes. Don’t assume that because you didn’t initiate the sale, it’s exempt or automatically wash out — your cost basis is the perquisite value already taxed, so the resulting gain/loss is usually small, but it must still be reported.
6. Keep every document: vesting confirmations, E*Trade/broker statements, 1042-S or equivalent foreign tax withholding certificates, dividend advices, and sale confirmations. Form 67 requires proof of foreign tax paid, and assessing officers frequently ask for this during scrutiny.
7. File Form 67 on time, even though courts have been lenient on delays. Relying on a favourable tribunal precedent is not a substitute for timely compliance — litigation costs time and money that a same-day filing avoids entirely.
8. A one-time disclosure window (FAST-DS 2026) has been proposed by the government for taxpayers — particularly ESOP/RSU holders — who missed disclosing foreign assets in earlier years, allowing regularisation with reduced penalty exposure. If you have missed past-year disclosures, it’s worth checking whether this scheme is open and whether you’re eligible, rather than continuing to stay non-compliant.
9. This area is high on the tax department’s radar. Notices to RSU/ESOP holders for incomplete Schedule FA filings have become common. Treat foreign share compliance as a recurring annual task, not a one-time chore.