Short answer: RSUs don't have an exercise date at all. That's an ESOP concept. For RSUs, the four dates that matter are grant date, vest date, settlement date, and sale date, and the one that starts your tax and capital gains clock is the vest date, not the grant date.
If you've held ESOPs before, or you're comparing an RSU offer to an ESOP offer, it's easy to expect an 'exercise' step where you decide to buy shares at a fixed price. RSUs don't work that way. Here's what each date actually means, and where the most common filing mistake happens.
Why there's no 'exercise date' for RSUs
With ESOPs, you're granted an option, the right to buy shares at a fixed exercise price. You choose when (and whether) to exercise that option, and exercising is itself a taxable event. RSUs are different. An RSU is a promise of shares, not an option to buy shares. There's no price to pay and no purchase decision to make. When your RSUs vest, they convert directly into shares that are yours, no exercise step involved.
If you want the fuller side-by-side of how RSUs, ESOPs, and ESPPs differ on this and other points, see our comparison: https://paasa.com/blog/rsu-vs-esop-vs-espp.
Grant date
The grant date is when your employer promises to award you a certain number of RSUs. At this stage, you don't own any shares, and nothing has been transferred to you.
The grant itself is not a taxable event, and you don't need to report anything in your tax return simply because RSUs were granted to you. It's also worth knowing that the grant price (if your offer letter quotes one) has no bearing on the tax you eventually owe. Nothing about the grant date feeds into your tax calculation later, so don't anchor any tax or holding-period math to it.
Vest date
The vest date is when your RSUs actually convert into shares and become yours. This is where the tax story really begins.
Vesting is the first taxable event for RSUs. On the vesting date, the fair market value (FMV) of the vested shares is treated as a perquisite and taxed as salary income, at your applicable income tax slab rate. This is true whether you sell the shares immediately or hold on to them. You owe tax on vested RSUs even if you don't sell.
A few mechanics worth knowing about the vest date specifically:
- You become the legal owner of the shares only at vesting, not at grant.
- The taxable salary value is: number of vested shares × FMV per share (in USD) × the SBI TT Buying Rate, applied on the vesting date.
- Employers usually deduct TDS underSection 192 of the Income-tax Act when RSUs vest, most commonly through 'sell to cover' (selling enough shares to cover the estimated tax) or by deducting the amount from your regular salary. All vested shares, including any sold to cover tax, are treated as taxed salary income at vesting. For a deeper look at that mechanic, see https://paasa.com/blog/what-is-sell-to-cover-rsu.
- The withholding at vesting is only an estimate. Your actual liability depends on your total income and slab, so you may owe more or get a refund when you file.
The FMV on vest date does double duty
The same FMV figure that gets taxed as salary at vesting also becomes your cost of acquisition for capital gains purposes later. This is the single most important number on your vest date: it sets both your salary tax bill today and your capital gains baseline for the future. It comes from the vesting date FMV, never the grant date FMV.
Section 49(2AA) of the Income Tax Act is the provision that fixes this cost of acquisition. It states that for shares already taxed as a perquisite under Section 17(2)(vi), the cost of acquisition is the fair market value that was used for that perquisite calculation, the same INR figure already reported in your Form 16. That's what Section 49(2AA) governs: the cost basis for your capital gains calculation. It does not set the start date of your holding period, that's a separate question, covered next.
Settlement date
Somewhere between 'vested' and 'sitting in your brokerage account,' there's a short administrative gap. Your employer's stock plan administrator has to actually move the shares into your linked brokerage account, which can happen the same day as vesting or a day or two later, depending on your employer's payroll and plan administrator processing.
Settlement date is a practical, operational concept, when shares physically land in your account, rather than a separate tax event. For Indian tax purposes, what matters is the vest date, not whichever day the shares happen to settle into your account.
Sale date
The sale date is when you actually sell your vested shares, and it's the second taxable event for RSUs. Any change in the share price between vesting and sale is no longer treated as salary income. It's treated as a capital gain or loss instead.
The formula: capital gain = sale value (INR) − cost of acquisition (INR). Sale value itself is number of shares sold × sale price × the exchange rate on the sale date. If you sell for more than the vesting-date FMV, the difference is a taxable capital gain; if you sell for less, it's a capital loss, on which no capital gains tax is payable, and which can generally be used to offset other capital gains subject to the applicable rules.
Since you already paid tax on the vesting-date value as salary, you're only being taxed again on the appreciation (or depreciation) that happened after vesting.
The mistake to avoid: the 24-month clock starts at vesting, not at grant
This is where people get tripped up, especially if you're used to ESOPs, where the exercise date (not the grant date) is often the reference point people reach for.
For foreign company shares received as RSUs, the holding period for capital gains purposes is counted from the vesting date to the sale date. Not from the grant date. Grant date plays no role in this calculation at all.
The 24-month threshold determines whether your gain is taxed as short-term or long-term:
- Held 24 months or less from the vest date: short-term capital gains (STCG), taxed at your income slab rate.
- Held more than 24 months from the vest date: long-term capital gains (LTCG), taxed at a flat 12.5%, without indexation.
Example. Suppose you have two vesting lots from the same employer, and you sell both on the same day.
| | | | | | | | | | :-: | :-: | :-: | :-: | :-: | :-: | :-: | :-: | | \\Lot\\ | \\Vest date\\ | \\Shares\\ | \\FMV at vest\\ | \\Cost of acquisition\\ | \\Sale date\\ | \\Holding period from vest\\ | \\Classification\\ | | Lot A | 1 April 2023 | 100 | $500 | ₹42,80,000 (at ₹85.60/USD) | 15 September 2026 | \\\~41.5 months | LTCG (more than 24 months) | | Lot B | 1 October 2025 | 100 | $550 | ₹48,78,500 (at ₹88.70/USD) | 15 September 2026 | \\\~11.5 months | STCG (24 months or less) |
Each vesting lot has its own vest date and its own cost of acquisition, and lots can't be combined into a single calculation. Combining them risks the wrong holding-period classification and the wrong tax. So on the exact same sale date, Lot A qualifies for LTCG and Lot B is taxed as STCG, purely because their vest dates are different. If someone anchored the clock to the grant date instead, and the grant date for both lots was, say, the same original offer date years earlier, they could wrongly classify Lot B as long-term. That is the specific filing error this article is warning you away from.
Total: two lots sold on the same day, two different tax treatments, because the clock runs from each lot's own vest date, not from grant.
What this means for your records
Because grant date doesn't feed into either your salary tax or your capital gains calculation, don't spend time reconciling grant-date paperwork against your tax filing. What you do need to track carefully, per vesting lot, is the vest date, the FMV and exchange rate on that date, and (later) the sale date and sale proceeds. Your Form 16 will show the salary income and tax withheld at vesting, but it won't contain everything you need to compute capital gains at sale, you'll also need vesting statements, brokerage confirmations, and sale records.
