1. NRI Meaning:

• Non-Resident Indian (NRI) refers to an Indian citizen or a person of Indian origin who resides outside India for employment, business, or any other purpose indicating an indefinite stay abroad.

2. NRI Status Calculation Process:

• NRI status is determined based on the individual’s physical presence in India during a financial year (April 1 to March 31).
• If an individual stays in India for less than 182 days in a financial year, they are considered an NRI for that year subject to meet out other conditions of status determination

3. Income Tax Applicable to NRIs:

• NRIs are taxed on income earned or accrued in India, such as income from property, capital gains, interest, dividends, etc.
• Income earned outside India is generally not taxable in India for NRIs.
• The tax rates applicable to NRIs are the same as those for residents of India.

4. Interest in NRE and NRO Accounts:

• NRE (Non-Resident External) accounts: Funds in NRE accounts are freely repatriable (can be transferred abroad) and are exempt from Indian taxes, including interest earned.
• NRO (Non-Resident Ordinary) accounts: Funds in NRO accounts are not freely repatriable, and the interest earned is subject to Indian taxes.

5. Double Taxation Avoidance Agreements (DTAA):

• DTAA aims to prevent double taxation of income in two countries.
• NRIs can benefit from DTAA provisions by claiming tax credits or exemptions in one country for taxes paid in the other country.

6. High-Value Transactions to be Kept in Mind by NRIs:

High-value transactions for NRIs can include various activities or financial transactions that involve significant sums of money or assets. Here are some examples of high-value transactions that NRIs should be mindful of:

Property Transactions:

• Purchase or sale of real estate: NRIs investing in or disposing of property in India should be aware of the high value associated with real estate transactions. This includes buying, selling, or gifting property.
• Rental income: NRIs earning rental income from properties in India should keep track of the high-value transactions associated with rental payments, lease agreements, etc.

Investments:

• Stock Market Investments: NRIs investing in the Indian stock market may engage in high-value transactions through buying or selling shares, mutual funds, or other securities.
• Fixed Deposits and Financial Instruments: Investments in fixed deposits, bonds, debentures, and other financial instruments may involve significant sums of money.

Banking and Remittances:

• Transfer of Funds: NRIs transferring large sums of money to or from India for investment, business, or personal purposes should be aware of the high-value nature of these transactions.
• Foreign Currency Accounts: Opening or closing foreign currency accounts, especially NRE and NRO accounts, involves high-value transactions that NRIs should monitor.

Loans and Borrowings:

• Loans and Mortgages: NRIs obtaining loans or mortgages from Indian banks or financial institutions for property purchase or other purposes may involve high-value transactions.
• Repayment of Loans: NRIs repaying loans or mortgages to Indian lenders also constitutes high-value transactions.

Business Transactions:

• Setting up Business Entities: NRIs establishing businesses or investing in Indian companies may engage in high-value transactions related to company formation, capital infusion, etc.
• Commercial Contracts: Business agreements, contracts, and transactions involving significant monetary values should be carefully documented and monitored.

Tax Payments and Compliance

• Payment of Taxes: NRIs fulfilling their tax obligations in India, including payment of income tax, property tax, or other levies, may involve high-value transactions.
• Compliance Reporting: Meeting reporting requirements for high-value transactions, such as filing tax returns, disclosing foreign assets, and complying with regulatory norms, is essential for NRIs.

7. Tax Filing for NRIs:

• NRIs are required to file income tax returns in India if their total income exceeds the basic exemption limit.
• Even if income is below the taxable threshold, filing a return may be necessary to claim a refund of taxes withheld at source or if certain types of income (like capital gains) are involved.
• Timely filing of tax returns and compliance with reporting requirements are crucial for NRIs to fulfill their tax obligations in India.

For personalized advice and assistance with tax matters, NRIs should consult with qualified tax professionals or chartered accountants familiar with Indian tax laws and regulations pertaining to NRIs.

Updated on 9th January 2026

When U.S. stocks are given to an employee in India, taxation can be complex due to the international nature of the income and the need to consider tax regulations in both the United States and India. Here’s a simplified overview of how taxation generally works for such cases, keeping in mind that tax laws are subject to change and can vary based on specific circumstances. Always consult a tax professional for advice tailored to your situation.

This article explains the taxation of US stocks, RSUs and ESOPs received by Indian employees. It covers perquisite taxation at vesting, capital gains on sale of US shares, disclosure under Schedule FA, and DTAA relief available under India–USA tax treaty.

1. At the Time of Granting Stock Options:

In general, if the stock options are granted to the employee but not vested, there is no immediate tax implication in India. The taxation event occurs at the time of exercise.

2. At the Time of Exercise:

When an employee exercises their stock options (i.e., buys the stock), the difference between the exercise price and the fair market value (FMV) of the shares is taxed as a perquisite (a benefit in addition to salary) under the head “Salaries.” This is subject to income tax according to the individual’s income tax slab rates in India.

3. At the Time of Sale:

When the employee eventually sells the stocks, the gain from the sale is subject to capital gains tax. The tax rate depends on whether it’s a short-term or long-term capital gain:

• Short-term Capital Gains (STCG): If the stocks are held for less than 24 months from the date of exercise, the gain is considered short-term and is taxed according to the individual’s income tax slab rates which is applicable.
• Long-term Capital Gains (LTCG): If the stocks are held for more than 24 months, the gain is considered long-term and is taxed at 20% with indexation benefits, which adjust the purchase price for inflation to calculate the gain.

4. Double Taxation Avoidance Agreement (DTAA):

India has a DTAA with the U.S., which means taxpayers can avoid being taxed twice on the same income. If taxes are paid in the U.S. on the income from the sale of stocks, you may be eligible for a credit for those taxes against your tax liability in India. 

DTAA Relief and Foreign Tax Credit (Form 67)

If tax is paid in the US on RSU or stock sale, relief can be claimed in India under the India–USA DTAA. Foreign Tax Credit must be claimed by filing Form 67 before filing the ITR, subject to conditions

5. Tax Filing in India:

It’s important for the employee to disclose international assets and foreign income in their Indian tax return if they qualify as a resident for tax purposes in India.

If you receive the RSU of a foreign company, you must disclose it under the Foreign Asset Schedule (FAS). If you paid taxes at vesting by selling shares, those shares wouldn’t be mentioned in FAS. While selling your RSU holdings, you pay tax only on the profit made and not the entire value of the shares. This also helps in avoiding double taxation

Non-disclosure can lead to penalties and interest and further Scrutiny by the tax department

6. Documentation:

Maintaining detailed records of the dates of grant, exercise, sale, and the amounts involved is crucial for calculating taxes accurately and for compliance with both U.S. and Indian tax laws.

This overview is a simplification, and the actual tax implications can vary greatly based on individual circumstances, specific types of stock options (e.g., ESOPs, RSUs), and changes in tax laws.

 

 Latest Updates – Budget 2025 & Foreign Asset Disclosure

 

With the Union Budget 2025, certain clarifications and compliance requirements have been introduced that directly impact Indian residents holding foreign stocks, RSUs, ESOPs, or any overseas financial assets:

1. Taxation of RSU/ESOPs – Budget 2025 Highlights

• No change in basic taxation rule – RSUs/ESOPs are still taxed as perquisites at the time of vesting/exercise and as capital gains at the time of sale.

• TDS Clarification (Budget 2025): Employers are mandated to deduct TDS more transparently on the fair market value (FMV) of foreign shares credited to employees. This aims to reduce mismatch between ITR reporting and Form 26AS/AIS.

• Capital Gains Reporting: The budget has simplified reporting of foreign equity gains in ITR-2/ITR-3 by aligning disclosure with Schedule FA (Foreign Assets).

2. Disclosure of Foreign Assets

• As per the Income Tax Act read with the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, every resident taxpayer (except RNOR) must disclose:

  • Foreign bank accounts

  • Foreign equity shares, RSUs, ESOPs

  • Overseas mutual funds, insurance policies, or partnership interests

• Schedule FA in the ITR must be duly filled; failure can attract stringent penalties.

3. Black Money Act – Latest Position

• Non-disclosure or misreporting of foreign assets can trigger:

  • Flat 30% tax on the value of undisclosed foreign income/assets.

  • Penalty up to 90% of the asset value.

  • Prosecution up to 10 years.

• Recent CBDT emphasis (2024–25) has been on data-sharing with global jurisdictions under CRS & FATCA, meaning non-disclosure of RSUs/foreign shares is now easily traceable.

4. Maintenance of Records

• Employees must maintain:

  • RSU grant letters, vesting schedules, and sale contract notes.

  • Foreign broker statements for share sale.

  • Bank remittance proofs for funds received from abroad.

• This helps during tax assessments or notices under the Black Money Act.

---

Example Scenarios

 

• Example 1 – RSU Vesting: An employee receives RSUs worth $10,000 (₹8,30,000) on vesting in FY 2024-25. This amount is taxed as salary. Later, when sold for $12,000 (₹9,96,000), the gain of ₹1,66,000 is taxed as capital gains.

• Example 2 – ESOP Exercise: If exercise price is ₹200 per share and FMV on exercise is ₹600, then ₹400 per share is taxed as perquisite. On sale, capital gains are computed over ₹600.

 

Disclosure of US Stocks in Schedule FA

• Mandatory for residents holding foreign shares

• Requires disclosure of acquisition date, cost, peak value

• Non-disclosure may attract penalty under Black Money Act

Learn everything about mandatory foreign asset disclosure and avoid heavy penalties BY CLICKING here: Foreign Assets Disclosure in ITR – Schedule FA Guide

---

Frequently Asked Questions (FAQs)

 

Q1. Do I need to report RSUs received even if I haven’t sold them?

✅ Yes, all vested RSUs must be disclosed in Schedule FA even if not sold.

Q2. What if I am an NRI and hold ESOPs of an Indian or US company?

✅ NRIs are taxed in the country of residence, but Indian-sourced ESOPs may attract TDS in India. DTAA relief should be checked.

Q3. Are unvested RSUs/ESOPs to be disclosed?

❌ No, only vested shares (where ownership has transferred) need to be reported.

Q4. What is the penalty for missing disclosure in ITR?

🚨 Penalty up to 90% of asset value under the Black Money Act + prosecution.

Q5. How is dividend income from foreign shares taxed?

✅ Fully taxable in India at applicable slab rates. TDS deducted abroad can be claimed as foreign tax credit under DTAA.

Q6. If I sell US stocks through a broker abroad, do I need to pay tax in India?

✅ Yes, being a resident, global income is taxable in India. Declare it under capital gains and claim DTAA relief if tax was paid abroad.

Q7. What if my employer directly withholds US tax on RSUs?

✅ Such tax can be claimed as Foreign Tax Credit (FTC) by filing Form 67 before the due date of ITR.

Q8. Is Schedule FA required if my total income is below taxable limit?

✅ Yes, if you are a resident and hold foreign assets, disclosure is compulsory even if your income is below the basic exemption limit.

Q9. Does the ₹7 lakh threshold for TCS on LRS remittance apply to sale proceeds of RSUs?

✅ Yes, if proceeds are remitted abroad under LRS, TCS rules apply.

Q10. What documents should I keep ready in case of tax scrutiny?

✅ Grant letters, vesting proofs, sale contract notes, and foreign brokerage statements.

---

⚠️ Disclaimer

This write-up is for educational purposes only. The information is compiled based on the Union Budget 2025 updates, CBDT circulars, and the Black Money Act provisions. The author has taken utmost care to ensure accuracy; however, tax laws are subject to interpretation and change. Readers are advised to consult a qualified Chartered Accountant or tax consultant before making any financial or tax-related decisions. The author is not liable for any errors or consequences arising from reliance on this article.

 

 

 

Futures and options trading is a popular way of making investments in the stock market. However, like any other business, it is not immune to losses. If you have incurred losses from futures and options trading, it is important to understand the tax implications and comply with the tax laws and regulations. In this article, we will discuss tax audit in case of loss from futures and options trading.

What is Tax Audit?

A tax audit is an examination of the financial records and tax returns of a taxpayer to verify the accuracy and compliance with the tax laws and regulations. As per the Income Tax Act, 1961, taxpayers whose total income exceeds a specified limit are required to get their accounts audited by a Chartered Accountant. This is known as tax audit.

When is Tax Audit Required in case of Loss from Futures and Options Trading?

A tax audit is mandatory in the following situations:

1. If the total income from futures and options trading exceeds the basic exemption limit: If your total income from futures and options trading exceeds the basic exemption limit, which is currently Rs. 2.5 lakhs, you are required to get your accounts audited.

• If the loss from futures and options trading exceeds the basic exemption limit: If your loss from futures and options trading exceeds the basic exemption limit, you are required to get your accounts audited even if your total income is below the basic exemption limit.

• If you are an eligible business under section 44AD: If you are an eligible business under section 44AD and you opt to declare a lower profit or loss than the presumptive profit or loss, you are required to get your accounts audited.

What is the Process of Tax Audit in case of Loss from Futures and Options Trading?

The process of tax audit in case of loss from futures and options trading involves the following steps:

1. Maintain proper records: It is important to maintain proper records of your transactions in futures and options trading. This includes purchase and sale bills, contract notes, bank statements, ledger accounts, and other relevant documents.

• Get your accounts audited by a Chartered Accountant: You need to engage a Chartered Accountant to audit your accounts and prepare a tax audit report. The report should be submitted in Form 3CA/3CB and Form 3CD.

• File the tax return: After the tax audit is completed, you need to file the tax return in Form ITR-3. You need to disclose your loss from futures and options trading in the tax return.

What are the Consequences of Non-Compliance with Tax Audit Requirements?

If you fail to comply with the tax audit requirements, you may face the following consequences:

Penalty: You may be liable to pay a penalty of 0.5% of the turnover or Rs. 1,50,000, whichever is lower.

Disallowance of Loss: If you do not get your accounts audited and file the tax return, your loss from futures and options trading will not be allowed to be carried forward to future years.

Notice of Defective Return U/s 139(9): You may receive the notice of filing of tax audit report duly certified by chartered Accountant within a prescribed time. Non-Filing of Tax Audit report may result of issue of further income tax scrutiny notice

 

Updates for AY 2025–26: Tax Audit and F&O Trading

With every new assessment year, the Income Tax Department introduces changes that impact Futures and Options (F&O) traders. For AY 2025–26, there are important updates relating to business codes, turnover limits for tax audit, and financial statement formats that traders and professionals should be aware of.

1. Updated Business Code in ITR-3

For AY 2025–26, the Income Tax Return (ITR-3) has introduced a separate “Nature of Business Code” for Futures & Options trading. This change will help the department in proper classification of income and reduce chances of mismatch or unnecessary scrutiny. F&O traders should ensure that the correct code is selected while filing their ITR to avoid processing delays or notices.

2. Revised Tax Audit Limit under Section 44AB

The turnover threshold for tax audit under Section 44AB has been updated:

• Tax Audit is mandatory if turnover exceeds ₹1 crore for F&O traders.

• In case the taxpayer opts for the presumptive taxation scheme under Section 44AD, the limit continues up to ₹2 crore. However, if the presumptive scheme is not chosen, audit becomes compulsory once turnover crosses ₹1 crore.

• Traders with lower turnover but reporting losses and not opting for presumptive taxation may also fall under audit requirements.

This makes it essential for every F&O trader to calculate turnover correctly (based on absolute profits/losses as per ICAI guidelines) and check whether audit provisions are applicable.

3. ICAI’s New Guidance Note on Financial Statements of Non-Corporate Entities

The Institute of Chartered Accountants of India (ICAI) has introduced a standardised format for financial statements for non-corporate entities, effective from FY 2024–25. This includes individuals, proprietorships, partnership firms, LLPs, and others covered under tax audit.

For F&O traders whose accounts are subject to audit, adopting this new format is highly recommended. It improves transparency, provides uniformity in reporting, and reduces discrepancies during assessments. While not a statutory mandate under the Income Tax Act, it is expected that auditors will follow this guidance in practice.

---

Why These Changes Are Important for F&O Traders?

 

• Proper disclosure ensures no mismatch with Form 26AS and AIS.

• Selecting the correct business code in ITR reduces the chance of ITR being flagged for scrutiny.

• Following the new ICAI format increases credibility of financials and strengthens compliance.

• Timely tax audit can help avoid penalties under Section 271B.

---

Frequently Asked Questions (FAQs)

Q1. Is tax audit mandatory for all F&O traders?
No. Tax audit is required only if turnover exceeds ₹1 crore (or ₹2 crore under presumptive scheme). However, if you report losses and do not opt for presumptive taxation, audit may still be mandatory.

Q2. What is the turnover calculation method for F&O business?
Turnover is calculated as the sum of absolute profits and losses from F&O transactions, plus any premium received on options and differences in settlement of contracts.

Q3. Is it compulsory to follow the ICAI Guidance Note format for F&O traders?
For individuals and proprietors subject to tax audit, the ICAI Guidance Note is not a statutory requirement but highly recommended. Most auditors will adopt the new format from FY 2024–25 onwards.

Q4. What if I don’t use the correct business code in ITR?
Using incorrect business codes may lead to mismatch, processing delays, or in some cases scrutiny under Section 143(2). Hence, always choose the correct F&O trading code while filing.

Q5. What are the penalties for non-compliance with tax audit?
Failure to get accounts audited as per Section 44AB may attract a penalty under Section 271B of the Income Tax Act, which is 0.5% of turnover (maximum ₹1,50,000).

---

Final Note for F&O Traders

 

For AY 2025–26, filing ITR with correct business codes, checking turnover for audit applicability, and preparing statements in the ICAI-prescribed format are key compliance requirements. Traders should maintain proper records of all contracts, profit and loss statements, and broker reports. Professional guidance from a Chartered Accountant is highly recommended to avoid penalties, scrutiny under Section 143, or reopening of cases under Section 147.

Conclusion

In conclusion, if you have incurred losses from futures and options trading, it is important to comply with the tax laws and regulations and get your accounts audited. This will not only help you avoid legal hassles but also ensure that you can carry forward your loss to future years and set it off against future profits.

Disclosure:

This blog does not constitute professional advice, and reliance solely on the content is not recommended. For specific guidance on your F&O trading accounts, tax audit requirements, and compliance under the new reporting formats, please consult a qualified professional.

📞 For assistance, you can reach N C Agrawal & Associates at +91-9718046555.