If your company just listed on a stock exchange and some of your RSUs are vesting around that time, here is the direct answer: yes, a lockup very likely applies to you, and no, it does not change when your tax is due. The lockup stops you from selling in the open market. It does not stop the Income Tax Department from taxing your shares the day they vest.
This matters because the gap between 'I can't sell' and 'I still owe tax' is exactly where employees at newly public companies get caught out. Here is what a lockup actually is, who it applies to, and why the vest-day tax bill shows up on schedule regardless.
What is a lockup period
A lockup period (also written lock-up) is a contractual restriction, not a tax rule. When a company goes public, the company and its underwriters typically sign a lockup agreement that stops company insiders, including employees, from selling their shares in the open market for a set window after the IPO. Lockups most commonly run180 days, though the exact length and any early-release terms are set out in the company's own IPO prospectus. Always check your own company's lockup agreement or IPO prospectus for the actual number of days and any early-release conditions, since these vary by company and underwriter.
The key thing to understand is what a lockup is not. It is not a tax deferral. It is not a vesting delay. It is purely a trading restriction that sits on top of shares you already own.
Who does a lockup apply to
A lockup applies to you if you are an employee (or other insider) holding shares of a company that has recently completed an IPO, and your shares fall within the lockup agreement's coverage. In practice this means:
- Shares you already held or that vested before the IPO, which convert into freely tradeable stock only once the lockup expires.
- Shares that continue vesting on your normal schedule during the lockup window itself. Vesting doesn't pause for the lockup. Your RSUs keep converting into shares on their usual dates, and each new lot is simply added to the pile of shares you're restricted from selling until the lockup ends.
If your company has been public for a while and there's no IPO-related restriction in force, this doesn't apply to you. It's specific to the window right after a company lists, or (less commonly) after a follow-on offering that carries its own lockup terms.
Why the vest-day tax still applies even though you can't sell
This is the part employees most often get wrong, and it's the one point in this post you should walk away certain of.
RSUs are taxed in India at two separate points: when they vest, and again when you sell the shares. Vesting is what makes you the legal owner of the shares, not the grant, and vesting is what triggers the first tax event, regardless of whether you're free to sell what you now own. The fair market value (FMV) of the shares on the vesting date is treated as a perquisite underSection 17(2) of the Income Tax Act and taxed as salary income in that financial year. Tax must be paid on that value in the year vesting happens, whether you keep the shares or sell them right away.
Nothing in that chain depends on your ability to sell. The law taxes the event of vesting, not the event of selling. A lockup restricts the second thing, not the first.
Example. Suppose you work at a company that IPO'd three months ago, and your next RSU lot of 100 shares is scheduled to vest next week, while your company's 180-day post-IPO lockup is still in effect. Come vest day, the FMV of those 100 shares (converted to INR using the SBI TT Buying Rate on the vesting date) is added to your salary income for the year and taxed at your slab rate, plus surcharge and cess, exactly as if there were no lockup at all. Your employer is still required to deduct TDS on that value underSection 192 of the Income Tax Act.
The one thing that does change is how your employer collects that tax. Normally, the most common method is sell-to-cover, where the employer or broker sells enough of the newly vested shares in the open market to cover the estimated tax and credits you with the rest. But an open-market sale of your shares is exactly what a lockup prohibits. So during a lockup, employers typically fall back on the alternative methods already used elsewhere: withholding an equivalent value in cash from your regular salary, or a net settlement where shares are withheld directly rather than sold on the exchange. Either way, the shares withheld or the salary deducted are still valued at the full vest-date FMV, and withholding for tax doesn't reduce your cost of acquisition on the remaining shares.
The exact mechanism your employer uses to withhold during a lockup, cash deduction versus net share settlement, depends on your company's plan administrator. Check your equity plan documents or ask your stock plan administrator directly.
Your cost basis for the shares is unaffected by any of this. It is fixed as the FMV on the vesting date, the same figure that was taxed as salary, whether or not you were able to sell that day. 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 fixed as the FMV that was used for that perquisite, the same INR figure reported in your Form 16.
What about secondary sales and tender offers before or around the IPO
Some employees at pre-IPO or newly public companies get an opportunity to sell a portion of their vested shares through a company-organised tender offer or secondary sale, separate from the public market. This isn't a special tax category. It's simply a sale, and it's taxed using the same framework as any other RSU sale: capital gain equals the sale value received minus your cost of acquisition (the FMV on the vesting date, already taxed as salary). Only the increase in value after vesting is taxed as a capital gain. The portion already taxed as salary at vesting is not taxed again.
Because RSUs of a foreign (or not-yet-listed) company are treated as unlisted equity shares/securities for Indian tax purposes, the holding period from vesting to the date of that secondary sale is what determines the rate: up to 24 months from vesting is short-term capital gains, taxed at your income slab rate, and more than 24 months is long-term capital gains, taxed at 12.5% without indexation. Each vesting lot is tracked and taxed independently, so if you're selling shares from more than one vest date in a single tender offer, calculate the gain lot by lot rather than averaging them together.
Nothing suggests tender offers or company-organised secondary sales carry Indian tax treatment distinct from an ordinary open-market sale; treat this section as the general sale-taxation framework applied to that specific liquidity event, not a claim about tender offers by name.
What happens once the lockup expires
Once the lockup lifts, you can sell in the open market like any other shareholder. Nothing about the tax math changes at that point either. Your cost basis is still the FMV on each lot's vesting date, and your holding period for each lot is still counted from that lot's vesting date to whenever you eventually sell it, not from the date the lockup ends. If you sell for more than that cost basis, the difference is a taxable capital gain; if you sell for less, it's a capital loss that can generally be used to offset other capital gains, subject to the applicable rules. Capital gains on these foreign shares are reported under Schedule CG in your ITR-2.
In practice, this means the lockup mainly forces a decision about timing and concentration, not tax. Every vest during the lockup already generated a tax bill and set a cost basis. When the lockup ends, you're often sitting on several months of vested, unsellable shares all becoming sellable at once, right when a large block of other employees are doing the same thing. It's worth deciding your post-lockup selling plan before that date arrives rather than reacting to it. See our guide onbuilding an RSU selling rule and on whyyour RSU is not your net worth until it's actually diversified.
