If you hold RSUs and your employer deducted TDS at vesting, it is easy to assume that your tax for the year is taken care of. For the perquisite at vest, it usually is.
But the moment you sell vested shares or receive dividends, you step outside what your employer covers — and into territory where you are personally responsible for paying tax on time.
This guide explains how advance tax works for RSU holders, why most people who sell shares end up owing it, and how to avoid the interest penalties under Sections 234B and 234C.
Table of contents
- TDS at vesting is not advance tax
- What your employer does cover
- What your employer does not cover
- When does advance tax apply?
- The advance tax schedule
- The relief for capital gains
- How to pay advance tax
- What happens if you miss the deadline
- How Paasa helps
TDS at vesting is not advance tax
When your RSUs vest, your employer deducts TDS under Section 192 of the Income Tax Act. This is the same mechanism that operates on your monthly salary. Most employers handle it through "sell-to-cover" — selling roughly 30% of your vested shares (or whatever matches your slab rate) on vest day and depositing the proceeds as tax with the government.
This is TDS, not advance tax. The two are different sections of the Act and follow different rules. The employer's TDS obligation ends with the perquisite at vest. Advance tax is your responsibility, paid in quarterly installments, on any income that the employer did not deduct TDS on.
How TDS is calculated and where it appears in your Form 16
What your employer does cover
The perquisite at vest — the rupee value of your shares on the vesting date — is the only RSU-related income that your employer is required to deduct TDS on.
Your Form 16 will show this amount and the TDS deducted against it. If you held all your vested shares and never sold any during the year, this is usually the end of your RSU tax obligations.
What your employer does not cover
Three things sit outside the employer's scope and are your responsibility:
Capital gains on sale.
When you sell vested shares, the gain over the vest-day FMV is taxed as capital gains. The employer does not deduct any tax on this. The Income Tax Act treats it as personal income that you are expected to pay through advance tax.
How capital gains on RSU shares are calculated
Dividends from your RSU shares.
US-listed companies withhold tax on dividends (25% with W-8BEN), but that is the US side. In India, dividends are taxed as income from other sources at your slab rate. There is no Indian TDS on this. The Indian tax has to be paid through advance tax.
Any shortfall in employer TDS.
If you changed jobs mid-year, had two employers running independent TDS calculations, or had significant non-salary income, your total liability may exceed what was withheld. Any gap is your responsibility through advance tax.
When does advance tax apply?
Advance tax applies when your total tax liability for the year, after adjusting for TDS and TCS already deducted, exceeds ₹10,000.
The advance tax schedule
Advance tax is paid in four installments across the financial year, with cumulative cut-offs:
| Due date | Cumulative advance tax payable |
|---|---|
| June 15 | 15% of total tax liability |
| September 15 | 45% of total tax liability |
| December 15 | 75% of total tax liability |
| March 15 | 100% of total tax liability |
If the cumulative payment at any due date is less than the required percentage, interest is charged under Section 234C on the shortfall for that quarter.
If the total advance tax paid by March 31 is less than 90% of the final liability, additional interest is charged under Section 234B from April 1 until the date of full payment.
The relief for capital gains
Capital gains create a real practical problem with the advance tax schedule: you cannot pay tax on a gain in June if the sale only happens in November. The Income Tax Act recognises this through a proviso to Section 234C.
If a capital gain arises after a particular advance tax installment due date, no interest is charged under Section 234C on the shortfall for earlier installments, provided the tax on that gain is included in the next installment due, or by March 31 if the gain arose after March 15.
In practical terms: if you sell shares in November and the resulting tax liability is ₹1,50,000, you do not owe interest for missing the June or September installments. You must pay the full ₹1,50,000 (plus any other advance tax due) by the December 15 installment to remain compliant.
Example: advance tax after a share sale
You sell 50 Google shares on January 15, 2026 and the resulting capital gain is ₹4,37,300. Your tax on this STCG, at the 30% slab plus 10% surcharge and 4% cess, comes to ₹1,50,081.
| Amount | Note | |
|---|---|---|
| Capital gain | ₹4,37,300 | Sale on January 15, 2026 |
| Tax at slab rate (30%) | ₹1,31,190 | |
| Surcharge at 10% | ₹13,119 | Applicable if total income is ₹50L–₹1Cr |
| Cess at 4% | ₹5,772 | On tax + surcharge |
| Total advance tax due on this gain | ₹1,50,081 | Must be paid by March 15, 2026 |
| Interest under 234C for earlier quarters | Nil | Gain arose between Dec 15 and Mar 15, covered by the proviso |
How to pay advance tax
Advance tax is paid directly to the Income Tax Department, not through your employer.
The payment is made online through the e-filing portal using Challan 280, with code 100 (advance tax). You will need your PAN, the assessment year, and the amount. The payment generates a Challan Identification Number that you should save — you will need it when filing your ITR to claim the advance tax as a credit against your final liability.
For RSU holders, the practical workflow is: estimate the tax on your sale shortly after the trade settles, log into the portal, pay the relevant installment by the upcoming due date.
What happens if you miss the deadline
Two sections of the Act apply.
Section 234C — interest at 1% per month on the shortfall for each quarter where you paid less than the required cumulative percentage. The capital gains proviso protects you from this for gains that arose late in the year, but not from shortfalls on regular advance tax.
Section 234B — interest at 1% per month from April 1 of the assessment year until the date of payment, if total advance tax paid by March 31 was less than 90% of the final liability.
These are simple interest charges and do not compound, but they accumulate quickly. A ₹1,50,000 shortfall left unpaid for six months carries roughly ₹9,000 in interest.
How Paasa helps
Paasa is the platform used by global Indian investors, HNIs, and family offices to diversify their wealth across global markets like US, UK, China, Singapore, Switzerland, and beyond.
For RSU holders, Paasa makes it easier to manage your equity compensation alongside the rest of your portfolio:
- RSU diversification across global markets while preserving USD exposure
- End of year tax documents covering capital gains, dividends, and Schedule FA in INR
- Consolidated reports calculated using mandatory SBI TT Buying Rates
- Optional access to advisory for taxation, FEMA, LRS, and compliance questions
If you are an RSU holder with questions around managing your global wealth, feel free to reach out to our team.
