- Indian employees may acquire shares of their foreign parent (or its group companies) under an employee benefit scheme without LRS limits, provided the scheme is offered globally on a uniform basis — Overseas Investment Rules, 2022.
- The Indian employer must withhold tax on the perquisite at exercise or vesting (fair market value less exercise price) through salary TDS, even though the shares are issued by the foreign parent.
- The Indian subsidiary reports shares acquired by its employees in Form OPI half-yearly within 60 days of 30 September and 31 March; employees disclose the shares in Schedule FA and repatriate sale proceeds within 180 days unless reinvested as permitted.
- Whether the ESOP cost enters the Indian company's transfer pricing cost base depends on whether the parent recharges it; both positions are workable if stated in the agreement and applied consistently.
FEMA: the permission
Under the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022, a resident individual who is an employee or director of an Indian office, branch or subsidiary of a foreign entity may acquire, without limit, shares or interests of that foreign entity (or its group entities) under an employee stock ownership plan, employee benefit scheme or sweat equity, provided the scheme is offered globally on a uniform basis. The acquisition is classified as Overseas Portfolio Investment (or ODI if it crosses the control or 10% listed-equity thresholds, which it rarely does). Remittance for the exercise price is made through the bank; cashless exercise is common.
Reporting falls on the Indian employer: Form OPI through the AD bank, half-yearly, within 60 days of the half-year ending 30 September and 31 March, covering shares acquired (and, on disinvestment, sold) by its employees in the period. Employees who sell must repatriate the proceeds within 180 days of receipt unless reinvested in permitted overseas assets.
Income tax for the employee
| Event | Tax | Who acts |
|---|---|---|
| Grant | None | — |
| Vesting of RSUs / exercise of options | Perquisite = fair market value on that date less amount paid; taxed as salary at slab rates | Indian employer withholds through salary TDS and reports in Form 16; FMV of foreign listed shares is the closing price on the exchange; unlisted foreign shares need a merchant banker's valuation |
| Holding | Dividends taxable as income from other sources; foreign tax credit via Form 44 (old 67) | Employee |
| Sale | Capital gain = sale price less FMV at vesting/exercise (the taxed perquisite becomes cost); long-term after 24 months for unlisted foreign shares (foreign listed shares are treated as unlisted for Indian holding-period purposes) | Employee; foreign capital gains tax, if any, credited via Form 44 |
| Every year | Disclosure of the shares, the brokerage account and income in Schedule FA of the return | Employee — penalties under the Black Money Act for omission |
Employees of eligible start-ups recognised under the start-up provisions may defer the perquisite tax; this applies to Indian start-up employers' own ESOPs, not to foreign parent plans. Employees who were non-resident during part of the vesting period may apportion the perquisite by days worked in India — a point to document for mobile employees.
The Indian employer's obligations
- Obtain the plan documents and confirm it is offered globally on a uniform basis.
- On each vesting or exercise, obtain the FMV, compute the perquisite per employee, and withhold through payroll (grossing up or recovering from the employee where cash salary is insufficient).
- File Form OPI half-yearly through the bank.
- Reflect the share-based payment expense under Ind AS 102 / the applicable standard; decide and document the transfer pricing treatment.
- Support employees with Schedule FA disclosure and Form 44 claims where foreign tax was withheld.
Transfer pricing: recharge or not
Two consistent positions exist. If the parent recharges the ESOP cost to the Indian subsidiary (common where the parent wants a local deduction and the group policy includes it), the cost enters the Indian company's operating cost base and is marked up like any other employee cost — and the recharge itself is an international transaction reported in Form 48, generally a reimbursement without markup. If the parent does not recharge, the Indian company has no cost; the intercompany agreement should say so expressly, because transfer pricing officers have argued that the unrecharged cost should be imputed into the base. Deductibility of a recharged ESOP cost in India has been accepted by courts where the cost is real and borne by the Indian company. GST does not apply to a pure recharge of the parent's own share-issue cost on most views, but the position should be documented.
Frequently asked questions
Can Indian employees receive shares of a foreign parent company?
Yes, under the Overseas Investment Rules, 2022, through an employee stock or benefit scheme offered globally on a uniform basis, without LRS limits. The Indian employer reports the acquisitions in Form OPI.
When is tax payable on foreign ESOPs or RSUs?
At vesting (RSUs) or exercise (options), on the fair market value less the amount paid, as a salary perquisite withheld by the Indian employer; and again on sale, as capital gains on the increase over that fair market value.
Who deducts the tax if the shares are issued by the foreign parent?
The Indian employer, through salary TDS, because the perquisite arises from employment with the Indian company. This applies whether or not the parent recharges the cost.
What is Form OPI and when is it due?
The Indian employer's half-yearly report to the RBI, through its bank, of foreign shares acquired or sold by its employees under the scheme — within 60 days of 30 September and 31 March.
Must employees disclose foreign ESOP shares in their tax return?
Yes, in Schedule FA every year while held, together with the foreign brokerage account and any dividends. Non-disclosure attracts penalties under the Black Money Act.
Should the ESOP cost be included in the Indian company's cost-plus base?
If the parent recharges it, yes — it is an employee cost and is marked up. If the parent does not recharge, state that in the intercompany agreement; the Indian company then has no cost to include.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- FEMA notifications — Reserve Bank of India
- RBI Master Directions — Reporting under FEMA; External Commercial Borrowings; Overseas Investment; Export of Goods and Services; LRS
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
- FAQs and guidance notes on forms under the Income-tax Rules, 2026 — Income Tax Department
Last reviewed on 1 November 2026 by Vidushi Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
