Fair market value (FMV) for RSUs: how it's calculated and why it matters
If you hold RSUs from a US-listed employer, one number follows you through almost every tax event you'll ever have with those shares: the fair market value (FMV) on the day they vested. It sets your salary income at vesting, your cost of acquisition when you sell, and it resurfaces every year in Schedule FA.
This post covers what FMV means for RSU shares, how it's actually calculated (including the currency conversion, which is where most people go wrong), the four exact points in your tax life where it matters, and how to handle a lot that's underwater.
What "fair market value" means for your RSU shares
FMV is simply the market price of a share on a specific date. For a US-listed stock, that's the price at which the share trades on its exchange (NASDAQ, NYSE, and so on) on the relevant date, in the local currency, USD.
For Indian tax purposes, foreign shares, including RSUs of overseas companies, are treated as unlisted equity shares or securities. This matters because it decides which holding-period rule applies to your capital gains later (covered below), even though the shares are, in the everyday sense, 'listed' on a foreign exchange.
The specific Rule 3(8) valuation mechanics that Indian tax law prescribes for genuinely unlisted shares (for example, a merchant-banker valuation) apply to closely-held Indian companies without a public quote. For RSU shares of a publicly traded US company, the actual FMV used is simply the market price on the relevant date, since a public quote already exists.
Brokers and payroll platforms commonly use the closing price; confirm the convention your employer's stock plan administrator uses when reconciling your Form 16.
The currency conversion: the one rule you must get right
Since RSU shares are priced in a foreign currency, every FMV figure has to be converted into INR before it goes into your tax return, and the Income Tax Rules are specific about which exchange rate to use.
You cannot use whatever rate you see on Google or a forex website, since that's a live market rate that fluctuates through the day and varies across providers. The rate the rules require is the State Bank of India's Telegraphic Transfer Buying Rate (TTBR), the rate at which SBI buys foreign currency from customers via telegraphic transfer.
Rule 206 (the current recodification of the former Rule 115) is the rule that governs how your RSU perquisite, capital gains, dividends, and interest are converted to INR for tax computation. Its default, for salary income, is the TTBR on the last day of the month preceding the month the income is due. But Rule 206 carries its own built-in exception: where tax has been deducted at source on that income underRule 26, the applicable date shifts to the date the tax was required to be deducted, not the preceding-month date.
Because RSU vesting almost always triggers immediate TDS through sell-to-cover, that exception is what actually applies for the RSU perquisite: the applicable TTBR is generally the vesting date itself, not the last day of the preceding month. Rule 26, the narrower rule your employer uses to calculate TDS withholding, points to that same date, the date tax is required to be deducted, so for a typical RSU vest, the TDS your employer withholds and the perquisite figure you eventually report are converted at the same rate.
If the vesting date falls on a Sunday or bank holiday when SBI does not publish a rate, you use the rate from the last working day prior.
Example. Suppose you have 100 RSUs vest on 15 October 2025, at a US FMV of $500 per share. Because RSU vesting almost always triggers TDS at vesting, you use the SBI TTBR on 15 October 2025 itself (or the last working day before it, if that date is a holiday).
| | | | :-: | :-: | | \\Item\\ | \\Value\\ | | Vested shares | 100 | | FMV per share (USD) | $500 | | Applicable TTBR (15 Oct, vesting date) | ₹88.20/USD (illustrative) | | \\Total FMV in INR\\ | \\₹44,10,000\\ |
The result: ₹44,10,000 is added to your salary income for the year and taxed at your slab rate, and it also becomes your cost of acquisition for the shares.
The four points where FMV matters
1. The vest-date perquisite. Vesting is the first taxable event for RSUs; the grant itself is not taxable. On the vesting date, the FMV of the vested shares is treated as a perquisite, which forms part of your salary income. The formula: Taxable Value (INR) = Number of Vested Shares × FMV per Share (USD) × SBI TT Buying Rate. You owe this tax even if you don't sell the shares, and your employer typically withholds it via sell-to-cover or salary deduction underSection 192.
2. The cost of acquisition (cost basis) for capital gains. The same vest-date FMV that was taxed as salary becomes your cost of acquisition for the shares. This is fixed underSection 49(2AA) of the Income Tax Act: the cost of acquisition for shares already taxed as a perquisite under Section 17(2)(vi) is the same INR FMV figure already reported in Form 16. That INR figure, having already been fixed at vesting, is converted at the vest-day TTBR under Rule 206, and is not re-derived or reconverted later. It's the grant price that's irrelevant here, not the vest-date FMV: the grant price has no impact on taxes owed at all.
3. The sale-date gain calculation. When you sell, capital gain equals sale value minus cost of acquisition. You pay tax only on the change in value after vesting, since the vest-date FMV has already been taxed as salary. Unlike the cost side, the sale proceeds are converted separately, using the TTBR on the last day of the month preceding the month of sale. Because foreign RSU shares are treated as unlisted for Indian tax purposes, the holding period that decides your rate runs from the vest date: up to 24 months is short-term capital gains (STCG), taxed at your income slab rate; more than 24 months is long-term capital gains (LTCG), taxed at a flat 12.5% without indexation. Surcharge and cess apply on top of both, with surcharge on LTCG capped at 15% regardless of total income.
Each vesting lot must be tracked separately, since lots cannot be combined into a single calculation without producing the wrong gain and the wrong tax treatment.
4. Schedule FA peak-value reporting. If you're a Resident and Ordinarily Resident (ROR), vested RSUs are foreign assets that must be disclosed in Schedule FA even if you never sell them. Three FMV-derived values go into Table A3 for each tranche: Initial Value (shares × FMV on vest date × applicable TTBR), Peak Value (total shares held on the peak date × market price that date × applicable TTBR), and Closing Value (shares held 31 December × market price that date × applicable TTBR). The vest-date perquisite and Schedule FA's Initial Value use the same vest-date TTBR. Peak Value and Closing Value use the TTBR on their own respective event dates instead: the date the peak occurred, and 31 December. Schedule FA follows the calendar year (1 January to 31 December), not the financial year the rest of your ITR uses.
Handling a lot that's underwater
If you sell RSU shares for less than the vest-date FMV, you incur a capital loss, and no capital gains tax is payable on that sale. India lets you set off losses between foreign assets like RSU shares and Indian assets, provided they fall in the same head of income (Capital Gains), underSection 70 of the Income Tax Act, 1961 (Section 108 under the Income-tax Act, 2025).
The matching rules for cross-border set-off:
| | | | :-: | :-: | | \\Loss type\\ | \\Can offset\\ | | Global STCL | Indian STCG and Indian LTCG | | Global LTCL | Indian LTCG only, not Indian STCG | | Indian STCL | Global STCG and global LTCG | | Indian LTCL | Global LTCG only, not global STCG |
The result: the only restriction on cross-border loss offsetting is that a long-term loss on one side cannot be adjusted against a short-term gain on the other. You cannot set off capital losses against salary or business income. If your total losses exceed your total gains for the year, you can carry the remaining loss forward for 8 years to offset future gains, but you must file your ITR (ITR-2/3) on or before the due date, usually 31 July, to claim the set-off and carry-forward; filing a belated return forfeits the right to carry losses forward.
