RSUs – Restricted Stock Units
What are RSUs?
RSUs are stocks of the company given by your employer as part of your compensation. The number of stock units allocated to you per annum as RSUs would be mentioned in your offer letter. There is no cost to be borne by you in acquiring RSUs.

However, there will be time restrictions on the selling of stocks allocated under RSUs. It is allocated every year as part of your package, and vest in tranches as specified by your company. You can sell your stocks only after it vests.
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How does it work?
The date, on which the RSUs are allotted to you is called the grant date. Though the shares are granted to you, you cannot sell them immediately. Every year, a certain percentage of the stocks (also known as tranches), become eligible to be sold. It is called Vesting of the shares, the price of the stock on that day is called vesting price, and the date is called vesting date. On vesting, you can either continue to hold the stocks or sell it. RSUs have no tangible value until it vests.
Assume you join a company on 1st April 2018, and you get 200 RSUs allotted to you. If the company specifies in the offer letter that the RSUs will vest in 4 tranches of 25% each for 4 years, then on 1st April 2019, the 1st tranche of 50 stocks will vest and you can consider selling it or continue to hold. Then, on 1st April of the following years, 2020, 2021, and 2022, the remaining RSUs vest at 25 stocks each.
Similarly, you will get another set of RSUs allocated in April 2019 with 25% vesting in the next 4 years. Once the stocks are vested, you become the absolute owner of the stocks and you can continue to hold it even after you quit the company.
You can also read What are ESOPs?
Taxability of RSUs
Since you do not incur a cost in acquiring RSUs, it is considered as an income when it vests. The market value of the shares on the date of vesting is considered as income.
Tax on the income: The income from RSUs should be declared as Other Income. In case you work for a foreign company, the income is treated as a foreign income. The tax rate applicable will be according to your IT slab rate.
Tax on the capital gains: When you sell the stocks allocated as RSUs, the gains made are subject to capital gains tax. The gain is calculated as the difference between the sale price and the vesting price.
If you sell your stocks within one year of vesting, it is treated as a short-term capital gain (STCG) and tax is calculated at the applicable STCG tax rate. If you sell your stocks after one year of vesting, it is treated as a long-term capital gain (LTCG) and LTCG tax rates are applicable.
Advantages
RSUs are an incentive for you to stay in a company for a longer time. There is a potential to create wealth in the long-term.
Limitations
Even though RSUs have a notional value when allotted, there is no value to it unless it vests. If you want to move out of the company, you will lose the stocks allocated to you as part of your package. It also carries the usual risks associated with equities.