A S BANKA ADVISORS

Key Takeaways

• When a foreign parent gives stock options to your team in India, the gain at exercise is taxed in India as salary: the fair market value on the exercise date minus what the employee paid.
• The Indian company that pays the salary is the one that withholds that tax. If it does not, the Income-tax Act treats it as being in default for that tax.
• Under RBI’s overseas investment rules, ESOP shares of up to 10% of the foreign company, without control, are overseas portfolio investment. The Indian company, not the employee and not the parent, reports them to RBI in Form OPI.
• Form OPI is due within 60 days from the end of each half-year (September and March). For shares acquired between 1 April and 30 September 2026, that is 29 November 2026.
• An employee resident in India who holds foreign shares at any time in the year has to file an income-tax return for that year, whatever their income.

You flipped to a US parent, or your Indian company was always the subsidiary of a group abroad, and the stock plan is run from there. It feels like the parent’s paperwork. It is not only the parent’s. This guide to foreign company ESOP taxation in India walks through what the Indian side owes when your team in India holds options in a foreign parent: the tax at exercise, who withholds it, the RBI reporting your Indian company files, and what the employee has to do in their own return. All of it is best settled before anyone exercises.

Why foreign company ESOP taxation in India catches founders out

The grant letter comes from abroad, the plan document is governed by foreign law, and the share register sits with a foreign transfer agent. So the natural assumption is that the tax and the reporting live abroad too.

Indian law looks at it from the other end. Your employee is resident in India and paid by your Indian company. The Income-tax Act taxes what they receive from their employment, and the foreign exchange rules govern a resident acquiring shares abroad. Both rules land on the Indian side of the group, whichever company issued the shares.

Step 1: The gain at exercise is Indian salary tax

For options exercised from 1 April 2026, the Income-tax Act 2025 applies. It treats as a salary perquisite the value of shares “allotted or transferred, directly or indirectly, by the current employer, or former employer, free of cost or at concessional rate”. The words “directly or indirectly” are why a grant from a group parent abroad does not sit outside Indian salary tax.

The taxable value is the fair market value of the shares on the date the employee exercises, minus the amount the employee actually paid for them. The shares can be foreign, unlisted and impossible to sell yet; the tax is still due for the year in which they come to the employee.

Who withholds the tax?

The person who pays the salary deducts tax on it, and the perquisite is part of the salary. In practice that is your Indian company’s payroll. If the Indian company does not deduct, or deducts and does not pay it in, the Act deems it an assessee in default for that tax, on top of any other consequence. That is why your payroll team needs to know about every exercise in the month it happens, not at the year-end.

What happens when the shares are sold?

When the employee later sells, or the parent buys the shares back, the gain is a capital gain. The cost for that calculation is the fair market value that was already taxed as salary at exercise, so the same value is not taxed twice in India.

Step 2: Which RBI route the shares fall under

A resident in India acquiring shares in a foreign company is making an overseas investment, and RBI’s rules sort it into one of two routes:

• Overseas portfolio investment (OPI): shares acquired under an ESOP or employee benefit scheme, up to 10% of the foreign company’s paid-up capital, and without control. For a team receiving options in a parent, this is the route the rules point to.
• Overseas direct investment (ODI): anything above that line, or with control. Then the employee reports the investment in Form FC.

The test is the employee’s holding in the foreign company, so a founder or senior employee holding a large stake in the parent needs a separate look.

Step 3: Your Indian company files Form OPI

This is the duty that is easy to miss, because it sits with the company and not with the employee. Where the shares are OPI, RBI’s overseas investment regulations put the reporting on the office, branch or subsidiary in India, or the Indian company in which the foreign parent holds equity, where the employee works. The return is Form OPI, filed through your bank.

The deadline runs by half-year:

For anything your team acquired between 1 April and 30 September 2026, the date is 29 November 2026. A late Form OPI can still be filed with a late submission fee, which RBI’s Master Direction sets at Rs 7,500 per return.

Step 4: The money the employee sends abroad

If an employee pays the exercise price from India, their bank can send it under the ESOP route. RBI sets no amount limit for these remittances, but they count toward the employee’s limit under the Liberalised Remittance Scheme, which is USD 2,50,000 per financial year (April to March) for a resident individual. An employee who has already used much of that limit on other remittances should plan the exercise around it.

Step 5: The employee’s own income-tax return

Once your employee holds the foreign shares, they hold an asset outside India. Under the Income-tax Act 2025, a resident (other than a not ordinarily resident) who holds any asset outside India, including a financial interest in an entity, at any time during the year must file an income-tax return for that year, whatever their income. How those holdings are reported in the return is covered in our guide to foreign assets and Schedule FA.

This is the employee’s duty, not the company’s. But it is worth telling your team at grant, because the shares stay on their return every year they hold them.

Step 6: When the parent buys the shares back

RBI permits a foreign company to repurchase ESOP shares from residents in India if three conditions are met: the shares were issued in line with the foreign exchange rules, the repurchase follows the terms of the original offer document, and the reporting is done through the bank. If your parent plans a buyback or a liquidity round, check the offer document says so before the employees accept.

Who does what, and when

A checklist for founders before the first exercise

1. Get the list of every India-based employee and director holding options in the parent, with grant dates and exercise prices.
2. Agree with the parent how each exercise reaches your Indian payroll in the same month, including the fair market value on the exercise date.
3. Confirm the fair market value basis the Indian payroll will use, before the first exercise, not after.
4. Check that no employee’s holding in the parent crosses 10% or carries control; anyone who does is on the Form FC route instead.
5. Diary the two Form OPI dates (29 November and 30 May) and name who in the Indian company files them with the bank.
6. Tell employees, in writing at grant, that the shares are a foreign asset for their own tax return and that the remittance counts toward their LRS limit.
7. Read the plan’s buyback and liquidity terms against RBI’s three repurchase conditions.

If you are setting up a plan of your own in India rather than through a parent, our guide on how to set up an ESOP for your Indian startup covers that route, and our ESOP tax guide for startup employees covers the domestic tax side.

Frequently asked questions

Are ESOPs from a foreign parent taxable in India?

Yes, for an employee resident in India. The Income-tax Act 2025 taxes shares allotted or transferred directly or indirectly by the employer as a salary perquisite, on the fair market value at exercise minus the price paid.

Who reports foreign ESOP shares to RBI?

Where the holding is overseas portfolio investment (up to 10% of the foreign company and without control), the Indian office, branch, subsidiary or group company where the employee works files Form OPI. Where it is overseas direct investment, the employee reports in Form FC.

When is Form OPI due?

Within 60 days from the end of the half-year, as of September or March, in which the shares were acquired.

Is there a limit on how much an employee can remit to exercise?

RBI sets no separate limit for ESOP remittances, but they count toward the employee’s Liberalised Remittance Scheme limit of USD 2,50,000 per financial year.

The bottom line

A foreign parent’s stock plan does not move the tax or the reporting out of India. The gain is Indian salary, your Indian company withholds it and files Form OPI, and your employees carry the shares on their own returns. None of it is hard if it is set up before the first exercise. Found out at the next round’s diligence, it is a clean-up.

Your team holds options in a foreign parent and you want the India side set up before anyone exercises? You can book a quick call with A S Banka Advisors Private Limited.

Sources: Income-tax Act 2025, as amended by the Finance Act 2026 (incometaxindia.gov.in). Reserve Bank of India, Master Direction – Overseas Investment, FED Master Direction No. 15/2024-25 dated 24 July 2024, updated as on 1 April 2026 (rbi.org.in). Reserve Bank of India, Foreign Exchange Management (Overseas Investment) Regulations, 2022, Notification No. FEMA 400/2022-RB dated 22 August 2022 (rbi.org.in). Reserve Bank of India, Master Direction – Liberalised Remittance Scheme, FED Master Direction No. 7/2015-16, updated as on 6 September 2024 (rbi.org.in).

Disclaimer: This article is general information for founders and is not legal, tax or investment advice. It states the position as on the date of publication; confirm the current position for your company, your plan and each employee before acting.