RSU vesting while in US vs India: the residency rules that decide which country taxes you

A senior engineer joined a US tech company's India office in 2019. Got transferred to the US on L-1 in 2022. Got RSUs that vested across 2022, 2023, 2024 while in the US. Returned to India in mid-2025. Has vests scheduled for 2026 and 2027 while now living in India. Sold some old shares from the US-vest period after returning. Received dividends throughout.

Every one of those events has a different tax answer.

The deciding factor isn't where the shares are listed (always US). Isn't where the brokerage account is (always US). Isn't where the employer is (always US). It's where the employee was physically present and tax-resident on the date the RSU vested, the dividend was paid, or the share was sold. Same RSU grant can be taxed under three completely different rule sets depending on which year of the vesting schedule you're looking at.

This article is for the bilateral case — Indian tech workers who have moved between countries during the lifecycle of their RSUs. If you've been a steady Indian resident throughout, the standalone framework covers your case. This article handles the complications when residency states change.

The three states an Indian tech worker typically cycles through:

State	Situation	India tax status	US tax status
A. India steady	Lived in India through the year	Resident & Ordinarily Resident (ROR)	Non-resident alien
B. US assignment	H-1B / L-1 / F-1 OPT, physically in US most of year	Non-Resident (NRI)	US tax resident
C. Bridge year	Returned to India mid-year, transitioning	Resident & Not Ordinarily Resident (RNOR) for 1-2 years	Was US resident, now non-resident or part-year

RSU tax treatment differs across all three. Get the state right; the tax answer follows. Get the state wrong; you'll either over-pay or under-disclose, and both have consequences.

How India determines your residency status

Section 6 of the Income Tax Act 1961 governs Indian residency. The test runs annually — your residency status for the financial year (April-March) is determined fresh each year based on physical presence in India.

The basic test (Section 6(1)):

You are an Indian tax resident in a financial year if either of these is true:

Condition	Threshold
Physical presence in India during the financial year	182 days or more
Physical presence in India during the FY	60 days or more AND aggregate 365 days or more across the four preceding FYs

The first test is most commonly used. If you spent at least 182 days in India in the financial year (April 1 to March 31), you're an Indian resident for that year — regardless of where your employer or shares are located.

The 120-day high-income rule (post-2020). If you're an Indian citizen with total income from Indian sources (excluding foreign income) exceeding Rs 15 lakh in the financial year, the 60-day threshold shrinks to 120 days. This is a clawback rule to capture high-earning Indian citizens who would otherwise spend just under 60 days a year in India and claim non-resident status.

The Resident vs RNOR distinction (Section 6(6)):

If you're a resident under Section 6(1), you're further sub-classified as either Resident & Ordinarily Resident (ROR) or Resident & Not Ordinarily Resident (RNOR):

You are RNOR (not ordinarily resident) if EITHER of these is true
You were non-resident in India for 9 out of 10 previous financial years	OR
You were physically in India for 729 days or fewer across the previous 7 financial years

If neither RNOR condition applies, you're ROR. This is the "fully Indian tax resident" status that taxes you on worldwide income.

Why RNOR matters for RSU holders. RNOR is the bridge status for returning NRIs. An RNOR pays Indian tax only on income that is "received in India" or "accrued in India" — foreign-source income that's earned and received outside India is generally not taxed during the RNOR years.

This creates a critical window: if you return to India after a long US stint, you may be RNOR for 1-3 years. During that window, RSU vests that are "earned" for work done in the US (even if the vest event happens after you've returned to India) may not be taxable in India — only in the US.

The "earned" attribution is where it gets complicated, which we'll cover below.

Worked residency calc example. Engineer was in the US from January 2022 to June 30, 2025 (continuously). Returned to India on July 1, 2025.

FY	Days in India during FY	Status
FY 2022-23	0 (assumed)	NRI
FY 2023-24	0 (assumed)	NRI
FY 2024-25	0 (assumed)	NRI
FY 2025-26	July 1, 2025 – March 31, 2026 = ~273 days	Resident (>182 days). But how is "ordinarily resident" determined? They were NRI in each of FY 2022-23, 2023-24, 2024-25. They were Resident in FY 2021-22. So they were NRI for "at least 9 out of 10" preceding years? No — only 3 of the preceding 4 years they were NRI. Need to look at full 10-year history. If they were also NRI for FY 2015-16 onwards (likely, given they were in the US through 2025), then they were NRI for 9 or more of the previous 10 FYs → RNOR for FY 2025-26.

So in FY 2025-26 they're RNOR. They'd remain RNOR until they fail both Section 6(6) tests.

How the US determines your residency status

The US uses a different framework. You become a US tax resident if you meet either of these:

Green card test: You hold a green card at any point during the year → US tax resident for that year.

Substantial presence test: You were physically present in the US for:

• 31 days during the current calendar year, AND
• 183 days across the current and previous two calendar years using this weighted formula:
  • All days in current year × 1
  • Days in previous year × 1/3
  • Days in year before that × 1/6
  • Sum ≥ 183 days → meets substantial presence

There are exceptions: F-1 students (during certain years), foreign government employees, professional athletes in events, certain medical conditions, and the "closer connection" exception (which allows substantial-presence-meeting individuals to claim they're tax-resident elsewhere if specific conditions are met).

Implications for H-1B/L-1 workers: Most H-1B and L-1 visa holders become US tax residents under substantial presence in their first or second year in the US.

Implications for returning workers: When you leave the US, you cease to be a US tax resident from the date you stop satisfying substantial presence. For mid-year departures, you may be a US dual-status alien for that year (resident for part of the year, non-resident for the rest).

The two-country residency matrix

Your India status	Your US status	Result for RSU income
Resident (ROR)	Non-resident alien	India taxes worldwide income; US doesn't tax (subject to W-8BEN for dividends)
Resident (ROR)	US tax resident (e.g., during a transition year)	Both countries tax; DTAA resolves via tie-breaker + FTC
Resident (RNOR)	Non-resident alien	India taxes only India-source + foreign income "received in India"; US doesn't tax
Resident (RNOR)	US tax resident	US taxes; India only taxes if income received in India
NRI	US tax resident	US taxes; India typically doesn't tax US-source income to NRIs
NRI	Non-resident alien	Both consider the other country primary; depends on residency of other countries you may be tied to

Most Indian tech workers cycling between US and India will move through several of these states across the lifecycle of a multi-year RSU grant.

State A: India steady — the simple case

If you've been an ROR throughout the vesting and sale period (lived in India, no US assignment), the simplest case applies:

• At vest: Perquisite tax in India at slab rate on gross vest value (INR per SBI TTBR on vest date)
• At dividend: Gross dividend taxable in India at slab; US WHT 25% (with W-8BEN); FTC claim via Form 44
• At sale: Capital gains in India under Section 112 (12.5% LTCG / slab STCG); no US tax for Indian-resident non-US-resident seller of US shares

This is the case covered in How RSU double-taxation actually works. Nothing changes; standard framework applies.

State B: H-1B / L-1 in the US — the inverse case

If you became a US tax resident during the vesting period and an Indian NRI during the same period, the residency states flip:

• At vest: US taxes the gross vest value as W-2 wages (federal income tax + FICA + state). India does not tax US-source employment income to an NRI.
• At dividend: US withholds 30% (or 15% under the older treaty rate if you were US tax resident, the withholding may not apply to US persons — instead taxed as ordinary income on Form 1040). India doesn't tax US-source dividends to an NRI.
• At sale: US capital gains apply to your sale (short-term ordinary income or long-term capital gains depending on holding period). India doesn't tax US-source capital gains to an NRI.

For NRI status filers, no Indian filing is required for these US-source events — they're entirely a US tax problem. The complication is what happens to vests, dividends, and sales when you're transitioning back to India.

State C: The transition / RNOR bridge year — where it gets complicated

This is the case that catches most filers. You returned from the US to India during the financial year. Your residency status for the year of return is RNOR (assuming you meet the "9 of 10 years NRI" condition).

During RNOR years, Indian tax law uses a different rule for foreign-source income than for resident-status workers. Specifically:

Income earned and received outside India is not taxable in India during RNOR years. This includes:

Income type during RNOR	Indian tax treatment
Salary for work performed outside India (paid by foreign employer, received in foreign bank)	Not taxable in India
RSU vest where the underlying service period was outside India	Likely not taxable in India (but see attribution rules below)
Capital gains on US-listed shares while RNOR	Generally not taxable in India
Dividends from US shares received in US brokerage account while RNOR	Generally not taxable in India
Indian-source income (Indian salary, Indian dividends, etc.)	Fully taxable as a resident

But there are wrinkles:

Wrinkle 1: The "received in India" rule. Even foreign-source income, if received in India, is taxable for an RNOR. If you remit your US salary or dividends to an Indian bank account, those amounts become "received in India" and trigger Indian taxation.

Wrinkle 2: The "attribution to India service period" rule for RSUs. This is the most contested area. The Indian Income Tax Department's position has been (consistent across multiple CBDT clarifications and rulings since 2018):

RSU perquisite tax in India is attributed to the days of Indian service during the vesting period, not to the vest date alone.

So if an RSU was granted on January 1, 2023 (while you were in the US, working for the US parent), with a 4-year vest cliff vesting on January 1, 2027 (after you've returned to India and are RNOR), the question is:

Days of service during the vesting period	Where the perquisite is taxable
Days while in US (2023-2025)	US (and credit available under DTAA Article 16)
Days while in India (2026-2027)	India (proportionate portion)

The portion taxable in India = (days in India during vest period / total vest period days) × gross vest value.

Wrinkle 3: The post-RNOR transition. Once you fail the RNOR tests (typically after 2 or 3 financial years back in India), you become ROR. From that point, all worldwide income is taxable in India.

If you have unvested RSUs that were granted while in the US but will vest after you become ROR, the attribution rule still applies — the portion attributable to US-period service is generally not taxed in India (covered by RNOR rules retroactively), but you'll need clean documentation showing where you were physically present during each portion of the vesting period.

The attribution mechanic — worked example

Engineer was granted 400 RSUs on January 1, 2023, with 4-year vesting (100 shares each January 1 starting 2024).

Vest date	Engineer's location at vest	Engineer's location during preceding 12 months	India tax treatment
Jan 1, 2024	US (H-1B)	US continuously	US taxes only; India doesn't (NRI)
Jan 1, 2025	US (H-1B)	US continuously	US taxes only; India doesn't (NRI)
Jan 1, 2026	India (returned July 1, 2025; RNOR)	US Jan-June 2025 (~6 months) + India July-Dec 2025 (~6 months)	Indian tax on ~50% of vest value (attributable to India service); US tax on 100% (US uses different attribution); FTC reconciles via Form 44
Jan 1, 2027	India (still RNOR or now ROR)	India full year (Jan-Dec 2026)	Indian tax on 100% of vest value; possibly some US residual tax depending on US year of departure rules; FTC if any

The Form 44 + Form 16 complexity here: the perquisite figure reported on your Form 16 may differ from the figure attributed to India under the residency rules. Your Indian employer (if you have one in India for your post-return employment) doesn't know the global attribution. They may report 100% of the vest value as Indian-side perquisite or none of it — depending on company policy and CA advice received.

Practical recommendation: if your case crosses residency states, get a cross-border tax CA involved before filing. This is the one scenario where DIY filing creates the highest risk of either over-paying (filing 100% as Indian perquisite when only the attributed portion is taxable) or under-disclosing (filing 0% when some portion is attributable to India).

Sale of US shares while RNOR

This is the sub-case most returning NRIs ask about: "I'm RNOR and sitting on US shares from RSUs that vested while I was in the US. Can I sell them tax-free?"

For RNOR holders, capital gains on US-listed shares are generally not taxable in India because the gain is foreign-source and the sale proceeds aren't typically received in India (they sit in the US brokerage account).

But:

• If you remit the sale proceeds to India, the amount remitted is "received in India" — though the gain is treated differently from the principal
• US tax may apply during your US-residency portion of the calendar year (if you sell while still a US tax resident in a part-year)
• US capital gains generally don't apply to non-US-residents on US-listed shares (the standard rule), but US taxes the part of the year when you were US-resident

Worked example. Returned to India July 1, 2025. RNOR for FY 2025-26.

Sale event	Date	India tax (RNOR)	US tax
Sold 100 shares (vested 2023 while in US)	August 15, 2025 (after India return)	Not taxable in India (foreign-source, not received in India, RNOR rules)	Not taxable in US (you're now non-US-tax-resident for the post-departure portion of year)
Sold 100 shares	June 15, 2025 (before India return)	NRI at sale; not taxable in India	US capital gains applies (you were US tax resident)
Sold 100 shares after becoming ROR (say FY 2028-29)	January 15, 2029	Indian capital gains under Section 112 (12.5% LTCG); cost basis = US-vest-date FMV in INR per TTBR	Not taxable in US (non-US-resident sale of US shares)

The RNOR window is a real tax-planning opportunity for returning NRIs sitting on US shares — but the documentation required to defend the position on later audit (passport stamps, lease agreements, employment records) is substantial. Don't rely on it without good records.

Dividends during the transition

Dividends are paid based on the record date. If you hold the share on the record date, you get the dividend.

Your residency status on dividend date	Indian tax	US tax (WHT)
NRI (in US)	Not taxable (US-source income to NRI)	30% if US tax resident; 15% if W-8BEN as Indian non-US-resident
RNOR	Not taxable in India (foreign-source, received in US brokerage)	25% under DTAA with W-8BEN
ROR	Taxable in India at slab rate on gross; FTC available	25% under DTAA with W-8BEN

If dividends are credited to your US brokerage account (never remitted to India), they're not "received in India" — and an RNOR doesn't owe Indian tax on them. Once you become ROR, the full gross dividend (whether remitted or not) is taxable.

Schedule FA — the disclosure rule that survives all residency states

The Schedule FA disclosure obligation runs independently of tax liability.

If you held foreign assets at any point during the calendar year, you must disclose them on Schedule FA — even if no Indian tax is owed on the income from those assets.

Your status	Indian tax owed on US shares	Schedule FA disclosure required?
ROR	Yes	Yes
RNOR (income earned and received outside India)	No (for foreign income)	Yes (assets still must be disclosed)
NRI	No	No (Schedule FA applies only to residents)

The trap: returning NRIs often skip Schedule FA in the year of return, thinking RNOR exempts them from disclosure. It does not. Schedule FA exempts only NRIs. As an RNOR, you're a "resident" for Schedule FA purposes and must disclose all foreign holdings.

The Black Money Act consequences for missing Schedule FA disclosure apply equally to RNOR and ROR — 30% tax + 3× penalty + 3-10 year prosecution risk. The Black Money Act has no time bar for non-disclosure cases.

DTAA tie-breakers when both countries claim residency

For the unusual case where you might be considered a tax resident of both countries in the same year (e.g., dual status alien in the US plus Section 6 resident in India), the India-US DTAA Article 4 has a tie-breaker sequence:

Tie-breaker tier	Test
1. Permanent home	Where your habitual abode is — typically the country where your family lives or you spend more nights
2. Centre of vital interests	Where your personal and economic relations are stronger
3. Habitual abode	Where you actually live most of the year
4. Nationality	If still tied, you're treated as a resident of the country whose nationality you hold (India for an Indian citizen)
5. Mutual agreement	Tax authorities of both countries resolve it through MAP (Mutual Agreement Procedure)

In practice, most returning NRIs solve this at tier 1 or 2 — your family being in India + your career restart in India tilts the tie-breaker to India.

Practical workflow when you've changed states

1. Pull your passport and confirm exact dates of US arrival/departure across all relevant years. Indian tax requires precise day counts.
2. Determine your residency status for each FY in the vesting period — Resident (ROR), RNOR, or NRI — using Section 6(1) and Section 6(6) tests.
3. For each vest event during the vesting period, identify the residency state and apply the attribution rule (days in India during vesting period / total vest period days).
4. For each dividend event, identify the residency state. Dividends typically don't attribute — they're taxed where you're resident on the date paid.
5. For each sale event, identify the residency state and apply the relevant rule.
6. File ITR-2 declaring residency as Resident or RNOR. Use Schedule FA to disclose all foreign holdings even when no tax is owed. Use Schedule FSI + Form 44 to claim FTC for any US tax paid.
7. For RNOR cases, attach a separate working that shows the attribution computation. Indian tax department audits returning-NRI returns more frequently; clean documentation makes the difference between a closed audit and a demand notice.
8. For dual-status year (US dual-status alien + Indian Resident or RNOR), file both Form 1040 (US) and ITR-2 (India). Coordinate the filings with a cross-border CA.

Common mistakes in the transition case

Mistake	Consequence
Filing as ROR in year of return without checking RNOR eligibility	Over-paying tax on foreign income that's not actually taxable to RNOR
Filing as RNOR when actually ROR	Under-disclosure; demand notice on processing
Skipping Schedule FA because "RNOR exempts me"	Black Money Act exposure (independent of tax liability)
Attributing 100% of a vest to India when only days-in-India portion should be	Over-paying perquisite tax
Attributing 0% to India when some portion should be	Under-disclosure
Remitting sale proceeds to India and assuming RNOR shield still applies	The "received in India" trigger may pull the gain into Indian tax
W-8BEN expired during US stint; getting 30% withholding instead of 25% on US dividends	Higher US tax than necessary; FTC won't fully recover the difference
Missing Form 44 because no US tax was paid (cross-state was nuanced)	If any US tax was withheld, file Form 44 even if reconciliation may not yield credit
Confusing "where the company is" with "where you are"	Always your residency, not the employer's residency

When to get a cross-border tax CA involved

If any of these apply, hire a cross-border tax CA before filing:

• You returned from the US to India during the financial year
• You're claiming RNOR status for the first time
• You have RSU vests that span both US and India residency periods
• You sold US shares during a transition year
• You have multiple vests in the same year under different residency states
• You're claiming foreign tax credit for US tax on income that's also partially attributed to India
• Your AIS shows transactions you didn't report (e.g., a vest event your employer's payroll captured)
• Your Form 16 perquisite figure doesn't match Morgan Stanley's vest value

Cross-border CA fees for a single complex return typically run Rs 25,000-Rs 75,000 — material money, but cheap relative to the Black Money Act exposure or the higher-bracket tax you might end up paying without proper attribution.

Next steps

The RSU lifecycle series is now complete with this article:

• How RSU double-taxation actually works — the framework
• Reading your Morgan Stanley StockPlan Connect statement — field-by-field translation
• From vest to ITR-2 — the complete workflow — the 12-step execution
• This article — the bilateral case

For the broader filing context:

• Schedule FA disclosure guide — Schedule FA deep dive, including for RNOR
• Form 67 vs Form 44 transition — the AY 2026-27 FTC form transition
• Returning to India with US RSUs — the complete playbook — life-event content for the return move (in development)
• The Schedule FA wizard — automate the conversion + computation layer from one PDF upload

The residency rules referenced are current as of June 2026 (post-Finance Act 2024). The Section 6 framework is durable; the rate parameters change with each Budget. We refresh the worked examples after each annual rate update; the framework section remains stable.

One critical disclaimer: this article describes the legal framework. Individual circumstances vary — particularly for dual-status year filers, those with multiple income streams, those still holding employee stock options (ESO/ESPP separate from RSUs), and those with significant passive income. Use this as the framework to understand what your CA tells you; do not rely on it as personalized tax advice.