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The first ever ESOP was issued in San Francisco in 1956 to enable employees to own a company after the founders passed away. Ever since then, ESOPs have become an increasingly popular way to allow employees to monetarily benefit from the value that their company creates, especially in the tech world.
Along with Employee Stock Options or as they are popularly known, ESOPs, Restricted Stock Units or RSUs are also another way to enable employees to own part of the company. While both ESOPs and RSUs serve the same end purpose, they are taxed slightly differently but we won’t get into those differences in this blog…
ESOPs/RSUs for Indian residents
As an Indian resident, you may come across four different types of ESOPs.
- ESOPs of a private and India-based company
- ESOPs of publicly-listed and India-based company
- ESOPs of a private and foreign-based company
- ESOPs of publicly-listed and foreign-based company
Irrespective of whether the company is India or foreign based, you can only liquidate ESOP holdings of a private company when the company either IPOs, gets acquired or there is a share buyback.
On the other hand, for a publicly-listed company, ESOPs/RSUs can be easily sold on the stock exchange and liquidated. Most people know that for an India-based company you can easily sell the vested shares and invest it into other stocks. But very few people know that you can also sell ESOPs/RSUs of a public foreign company and re-invest the proceeds abroad without needing to bring the funds back to India.
Is it legal to re-invest foreign ESOP/RSU proceeds internationally?
In July 2024, the Ministry of Finance published updated Master Direction – Overseas Investment regulations (Ref: Page 6, point f). Under these regulations, it was clarified that any shares acquired or received under Employee Benefits Schemes (includes ESOPs/RSUs) are considered as Overseas Portfolio Investments as long as these shares are less than 10% of the total equity of the company (which they are 99% of the time).
Further, Overseas Portfolio Investments can be re-invested in any other publicly-listed companies within a period of 180 days from its sale.
In conclusion (and this conclusion has been confirmed with multiple leading law firms in India) – An Indian resident that has overseas ESOPs/RSUs in publicly-listed companies can re-invest the funds from its sale in other listed stocks as long as they are reinvested within 180 days of the sale. You can get started on this today itself via Vested.
Why would you want to re-invest your ESOP/RSU proceeds abroad?
Now, you may be wondering why one would want to re-invest their ESOP/RSU proceeds abroad. There are a few reasons why:
- Diversify your wealth: As the underlying value of the ESOP grows, more and more of your wealth might end up concentrated in the stock of just one company. In order to create a more robust portfolio, it would be prudent to diversify your holdings into multiple companies or ETFs
- Invest in the US market without forex fees and TCS: If you own ESOPs in US-listed companies, you can easily transfer USD from your ESOP account to a Vested brokerage account to invest in 5,000+ US stocks and ETFs. You would not need to pay any forex conversion fees or have funds blocked because of Tax Collection at Source (TCS) since you would not be transferring funds from India or converting currencies
- Fast fund transfers: You can move funds into your US brokerage account quickly via domestic ACH or wire transfers via a completely online process
How can you transfer your proceeds to your Vested account to re-invest? (for US-listed ESOPs/RSUs)
To reinvest your USD proceeds in other US-listed stocks such as Apple, Google, Tesla, Microsoft, you would need a US brokerage account. Vested allows Indian residents to easily open a US brokerage account.
Here are the key steps to transfer your ESOP/RSU proceeds into your Vested account:
- Complete your KYC to open a Vested US stocks brokerage account
- Go to the ‘Transfer’ section on the app and click on the ‘ESOP/RSU’ account option
- Within this section find the broker with which you hold your ESOP/RSUs like Fidelity, Morgan Stanley, Computershare, E-trade or Charles Schwab. Note: If you cannot find your broker, you can click on View General Instructions to get the key pieces of information to initiate a wire transfer from any other broker
- Download the pdf instructions to transfer funds
- Head to your ESOP/RSU account and follow the instructions provided in the PDF
- Once the transfer is initiated, the funds typically get credited on Vested within 5-7 business days
Typically, the broker charges a one-time wire transfer fee when you move the funds. This ranges from $25 to $50 per wire.
Still finding it difficult? The video below has a step-by-step guide on how to transfer your ESOP/RSU proceeds into your Vested account.
This video will help simplify the entire process for you and can be followed along as you complete each step.
Sign up on Vested to start diversifying your ESOP/RSU proceeds.
What are the tax implications when I transfer cash from selling ESOP/RSUs to Vested?
The tax implications are simple, based on the amount of time you have held these shares, you will be paying long-term or short-term capital gains tax upon sale of your ESOPs. More details on this can be found in our taxation article – How taxation works when investing in foreign stocks.
Once the capital gains tax is accounted for, there is no additional tax related to transferring the funds to your Vested account.
Does vested offer some features like an Systematic Transfer Plan (STP)? I generally sell some RSUs every 6 months and transfer it to vested account to cover for my monthly SIPs (vests and ETfs).
But this money keeps lying in my account for major part of 3-4 months. An STP like feature would allow me invest the amount in some low risk ETFs and then sell it monthly to buy the vests and other SIPs.
I think several folks might be have having this situation. Please suggest some potential solutions that can be automated easily. Thanks.
Sorry, maybe I wasn’t clear enough. I was not suggesting Vested to pull the amount from my RSU. I can sell RSU on my own that as it’s done only 2-3 times a year.
My question was that: once the RSU sell amount hits my Vested account –> then I want to invest it in some low risk ETF –> and gradually sell portions on monthly basis –> to cover my vests and other SIPs orders.
So, this automated STP feature (1 ETF to other Vests/ETF) can be built on Vested itself. Let me know if such solution is already there or any workaround for it. Thanks.
Great suggestion. We today unfortunately don’t have any way in which we can initiate a funds pull from an RSU account. Trying to figure out a way to enable it..
Could you please confirm if following points are correct as per new tax changes in 2024:
1. LTCG is now 12.5% without indexation.
2. Duration for LTCG is >=24 months for both stocks and ETFs (earlier it was >=36 months for ETFs)
Anything else that might have changed for folks investing in US Stocks / ETF / MF.
Yes, the 2024 tax changes confirm both points accurately. For detailed information on taxation for international investments, please refer to our blog, where we have covered the latest tax updates and implications for U.S. stocks, ETFs, and other foreign investments.
https://vestedfinance.com/blog/vested-updates/budget-2024-tax-implications-on-us-stocks-and-bonds/
Is it necessary to only invest in stocks or can I get interest from investing in other instruments like bank accounts or sort ?
In case we do not get back the money in 180 days then what needs to be done
The 180 days regulation is on the individual to comply with and one may get queries later so better to follow it.
Interest earned by keeping cash in a bank account doesn’t really count as an investment…it needs to be deployed into listed instruments or funds. Pls check the 2022 Overseas Investment regulations for more details
I have ESPP/RSU in etrade account and how much will be charged for the transfer ? How is this trasfer financially beneficial rather than paying $10 to withdraw and add manually to vested ?
The fixed charge depends on what E-trade offers your company account for a USD wire, so pls check that. This option is beneficial if you’re looking to reinvest in the US markets since it’s a USD to USD transfer. Otherwise you end up paying 1-2% in currency conversion charges if you convert to INR first and then to USD again
I tried doing this via Schwab, but my transfer was rejected by the bank provided by Vested team with a message “Unable to Apply”. I was also charged a 50$ wire rejection fee. Please double check with Vested and before initiating this transfer. Take a confirmation from them that they’ll bare any charges / penalty due incorrect information.
Ah unfortunate that it didn’t go through smoothly, we usually don’t see issues with the transfers. We can check why it got rejected and revert. Were you able to get it done eventually then?
Is the 180 Days limit also applicable for Dividends? What happens if we dont transfer the fund within 180 Days?
Our understanding is that it is applicable. Currently it is on the individual to comply with the regulation. If it is cash in Vested accounts, we help comply by providing reminders.
Big thanks for promptly replying to all the above queries. It helped a alot. I have few queries as written below:
(1) Investments made in US stocks through vested, will it be tracked through our PAN number
(2) Does this investment details available in AIS (In income tax website)
We do have the PAN number associated with the account in our records, however currently it doesn’t directly flow to the income tax website. It is tracked via the Schedule of Foreign Assets that one is required to file when filing taxes
Initiated my first transaction, was looking for something like this from quite some time. Let`s see how it goes.
It was perfect.I tried with Etrade
Great, hope the transfer worked out fine!
Let’s say I transfer capital gains and dividend income from RSUs, do I need to reinvest the complete amount within 6 months? I mean if I start a SIP in some ETF depending on the amount it might take more than 6 months for the reinvestment to happen. Can the cash lie in the broking account for more than 6 months in that case?
Yup, any cash in the account needs to be invested within 6 months. You could temporarily invest the cash that will not be invested via the SIP within 6 months in a low-risk ETF
Hey, my RSUs are with Merill Lynch. Some amount is withheld for tax. If I transfer it to Vested, will this tax amount also get transferred? In the doc above it is mentioned that “You would not need to pay any forex conversion fees or have funds blocked because of Tax Collection at Source (TCS) since you would not be transferring funds from India or converting currencies”.
Hey, I’m not a 100% sure, but I believe the tax deduction is for income tax purposes. In that case, it will not get transferred since that tax has to only be paid and is not refundable. What we are referring to in the article is the Tax Collection at Source that happens when one remits funds from India, that tax is refundable and can be offset against other tax obligations
Hi,
Could you please confirm if long term (>=36 month) tax of 20% is applicable for ETFs as well?
Asking since there is recent change regarding taxation which made International Funds/ETFs from India getting taxed at income slab if they have less exposure to Indian Equity.
How could I transfer or invest from ICICI Bank directly
Yup, 20% is still applicable for long-term capital gains for ETFs. Long-term is >= 36 months
Can you also please share the conversion rates which gets applied,
Reason is SBI or any PSU banks today gives better conversion rate when we move money to India.
Vested/SBM together as far as I know charge little higher then that.
You can still use that route to bring your funds back to India whenever you want by wiring it from your Vested account
Is there a different procedure to be followed for transferring rsu and espp or will it remain same for both?
Can you please explain this
“Typically, the broker charges a one-time wire transfer fee when you move the funds. This ranges from $25 to $50 per wire. ”
Everytime I transfer from my Morgan Stanley account (whether it is the dividend gained or RSU sold or ESPP sold) there will be a transfer fee – minimum of 25$ ??
I tried to initiate one transfer on my dividend gains. But there I do not see the charges. May be Morgan Stanley is unaware of this charge.
Hey, its the same process for both
Is this option available from religare+vested,as I have vested account along with Religare
Yup, it’s available under Religare + Vested as well
Are there any tax need to be paid in US?
do we need to file form W-8BEN ? At what time do we need to file W-8BEN ?
We file the W8-BEN on your behalf when you open a Vested account. There is a withholding tax of 25% on the dividend you earn which you can claim credit for when you file in India, apart from that no taxes in the US
Can we not transfer the stocks only to vested without selling them and transferring the USD?
You can. Please check which stock transfer method is available with your broker – DTC or ACAT. There are different fees associated with both. We can then help with the process, pls drop a note at help@vestedfinance.co
On taxation, yes whenever you sell you will need to pay capital gains tax. If you have held the shares for less than 24 months then it is as per your income tax slab. If you have held them for more than 24 months then the rate is 20% with indexation benefits.
the indexation benefit is not available for foreign share . not listed on indian bourses
Can I transfer Stock acquired via ESPP (Employee Stock purchase Plan)?
Yes, you can. We will add detailed instructions on it soon. In the meantime pls check which stock transfer method is available with your broker – DTC or ACAT. There are different fees associated with both. We can then help with the process, pls drop a note at help@vestedfinance.co
My CA pointed me to https://m.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=2126
Point 22 (4)
“(4) A person resident in India may transfer by way of sale the shares acquired in terms of sub-regulation (1) and (2) above
Provided that the proceeds thereof are repatriated immediately on receipt thereof and in any case not later than 90 days from the date of sale of such securities.”
Don’t we have to repatriate the funds back to India before making the investment?
So that’s the old regulation. This got updated with RBI’s new Overseas Investment regulations in 2022.
You can share the below two points with your CA to verify:
1. ESOP/RSUs now qualify as Overseas Portfolio Investments or OPI. Refer to 1f here – https://rbi.org.in/scripts/FS_Notification.aspx?Id=12381
2. OPI falls under RBI’s Liberalized Remittance Scheme or LRS and therein one can reinvest as long as it’s within 180 days. Refer 17 here – https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10192
I used Morgan Stanley Stockplan (which was provided by my employer).
I see the following events –
1. Sell RSU using broker X (US account)
2. Receive funds in vested broker (US account)
3. Buy US equities
Do we have to report all 3 to ITR?
I want to transfer RSUs from a family member’s account to mine. What are the tax implications with this transfer for me and him?
Tax will be payable on event 1 only. After that only whenever you sell your holdings on Vested.
You will need to disclose your foreign holdings in your Schedule FA, that we will help you with and provide all the info required in a easy manner
I recently made a transfer and it worked flawlessly and got the funds in T + 1 days.
Just had a small query regarding taxation. Don’t we have to pay capital gains tax when we sell and transfer to the vested brokerage account
Excellent, which broker did you transfer from?
On taxation, yes whenever you sell you will need to pay capital gains tax. If you have held the shares for less than 24 months then it is as per your income tax slab. If you have held them for more than 24 months then the rate is 20% with indexation benefits.
This is awesome initiative and will help a lot of us to diversify. Can you also clarify if the dividend income received from our employers stocks can also be reinvested through this route ?
Or are there separate regulations for dividends ?
Great to hear that! Dividend income can also be transferred since any income related to investments can be re-invested
Not able to see RSU option under transfer section
Are you still not able to see it? Please drop a note at help@vestedfinance.co and we can take a look
Is it possible to transfer Dividend received in my ESOP account of Fidelity to vested accoutn. Am not finding ESOP option in transfer.
Yup, dividend income can also be re=invested via your Vested account