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While working at an Indian branch of a company based in US, I got some Restricted Stock Units vested couple of times.

Earlier times (Scenario S1), all the stocks (Say I got 100 stocks vested) would be given to my stock account and the Perquisite tax (Say it was Rs.10000) would be collected from my monthly salary in INR.

Later times (Scenario S2), Perquisite tax would be taken in the form of stocks. Meaning, out of 100 vested stocks, I would get only 90 into my stock account and nothing would be taken from my monthly salary.

Question 1:
In S1, I think the tax money goes to Indian government. In S2, How does Indian government get the tax money ?

Question 2:
When I sell the stocks (say after 4 years), should I pay tax any more tax ?

Question 3:
Which Scenario (S1 or S2) is better for Employees ? I think this depends on whether the Stock Price goes up or down.

{{ UPDATE : If Stock Price goes up, S2 is better for company to keep the tax shares, while it is bad for Employee because he has fewer shares of higher value. If company has to pay out 10 Million shares to all Employees, then by S2, it needs to pay out only 9 Million shares, which gives company "more control".
If Stock Price goes down, S1 is better for company because it has already "sold" at higher Price, while it is bad for Employee because he has more shares of reducing value, having paid tax through "higher value" stocks. }}

Question 4:
What tax should I pay for the Dividends which are accumulating in my stock account but not yet transferred to my Indian Bank ?

{{ UPDATE : Dividend is still in stock account in USD, not yet transferred to India in INR }}

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In S1, I think the tax money goes to Indian government. In S2, How does Indian government get the tax money ?

In S2; the remaining 10 stocks are either sold to market [or purchased internally] and the equivalent tax paid to the Indian Government.

When I sell the stocks (say after 4 years), should I pay tax any more tax ?

Yes you will need to pay Capital Gains Tax as applicable.

Which Scenario (S1 or S2) is better for Employees ? I think this depends on whether the Stock Price goes up or down.

Both are technically same.
In option S1; if you don't have 10K in your Bank account, you can sell 10 stocks worth 10K to become neutral ... i.e. it assumes your have enough funds to pay the relevant tax. This maybe difficult if the amounts are large and an employee may not have the said funds. It has cash flow issues from employee point of view. i.e. he needs to have funds pay tax and then if required can sell and get the money back.

In S2; the company is selling it and there is no cash flow issue for employee. If he needs [and if possible] he can buy back the 10 shares from market if he has the cash or leave it [assuming it is easily accessible].

What tax should I pay for the Dividends which are accumulating in my stock account but not yet transferred to my Indian Bank ?

Dividends are tax free; Dividends by foreign company are taxable in India. You would need to declare this as income from other sources and file returns. It does not matter whether the dividends are repatriated to India or residing abroad. If the Dividends receive any Interest, the interest also is treated as income and taxed as per tax brackets.

  • +1 ; Q1 & Q2 answers sound right. Q3 & Q4, I have added few Details in Question – Prem Jul 4 '18 at 14:41
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    @Prem On Q3; that is not the correct way of looking at it. In S2 when the company gives 9 Million shares to you; it has used the 1 Million in shares; converted to cash and paid the tax to Govt. – Dheer Jul 5 '18 at 5:39

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