RSU
Restricted Stock Unit
A promise of actual shares on vesting, with no exercise price — unlike an ESOP, which is an option. Indian company law is written around options, so RSUs mostly show up via a foreign parent.
A Restricted Stock Unit (RSU) is a promise to deliver a share (or its cash equivalent) once vesting conditions are met — there is no strike price and no exercise decision. This is the key mechanical difference from an ESOP, which grants an option to buy shares at a fixed exercise price.
Why RSUs are less common for Indian private companies: Section 62(1)(b) of the Companies Act 2013 and the Companies (Share Capital and Debentures) Rules 2014 are drafted specifically around employee stock options — the statutory ESOP route. There is no equivalent statutory scheme for RSUs of an Indian company's own shares. Indian startups that want an RSU-like outcome typically either grant real ESOPs with a very short (or zero) notional exercise price, or route the benefit through sweat equity.
Where RSUs actually appear in India: almost always where the grant is of shares in a foreign parent — e.g. an Indian subsidiary of a US-listed company granting its Indian employees RSUs in the US parent. This is common at Indian arms of global tech and financial firms.
Tax treatment: RSUs of a foreign parent are taxed as a perquisite under Section 17(2)(vi) at vesting, based on the fair market value of the underlying share on the vesting date — conceptually similar timing to ESOP exercise, but the valuation basis is the foreign share price (converted to INR), not a Rule 11UA valuation.
Common pitfalls: treating RSU vesting like ESOP exercise for withholding purposes without checking the actual trigger date; and missing the FEMA / Liberalised Remittance Scheme reporting and Annual Return on Foreign Liabilities and Assets (FLA) obligations that come with Indian residents holding foreign shares — an ESOP of an Indian company doesn't carry this cross-border reporting layer at all.
Model RSU-equivalent grants alongside real ESOP pools in your cap table so dilution scenarios stay comparable.
Equity-linked employee incentive scheme under Section 62(1)(b). Tax events at exercise (perquisite) and sale (capital gains). Min 1-year vesting period.
Reserved share capacity for future ESOP grants. Typically sized at 10–15% post-money. Pre-money expansion is a hidden founder-dilution cost.
Category of shares with distinct rights — equity vs preference; voting vs non-voting; ordinary vs Class A/B/DVR. Governed by Section 43 and the AoA.
Indian statute governing cross-border transactions. Administered by RBI. Two pillars: current account (free unless restricted) and capital account (regulated).