Income Tax and FEMA Implications for Receiving Equity Stake in a UK Company as CTO

Tax queries 5153 views 5 replies

Ani L

Software Developer

66 Points Joined February 2013

Dear Experts,

One of my clients has recently incorporated a company in the UK and has offered me a full-time role as CTO. As part of the arrangement, I will be receiving:

15% equity stake upfront at no cost
Additional 10% equity over the next 3 years (vesting monthly, i.e., ~1% every quarter)
The purpose of this structure is to retain me and leverage my expertise and name.

Currently, there is no investment required from my side. The plan is that once we build a prototype, the company will look to raise funds.

I have the following queries:

Income Tax:
- How do I disclose this in my Indian income tax return since I am receiving equity in a foreign company at no cost?
- Will this be taxed as perquisite income (similar to ESOP) or only when I sell the shares?
- Is there any requirement to declare it under the Schedule FA (Foreign Assets) of the ITR?
FEMA Compliance:
- What FEMA rules apply when an Indian resident is allotted shares in a UK private limited company without consideration?
- Do I need to file any intimation with RBI under LRS or any other FEMA regulation?
Future Funding:
- Once the company raises funds abroad, will there be any additional compliance for me in India as a shareholder?

I want to ensure 100% compliance with both Income Tax and FEMA regulations from the beginning. Request guidance from the community on the correct approach.

Thanks in advance for your valuable inputs.

Replies (5)

Rama chary Rachakonda

Master in Accounts & high court Advocate

9256 Points Joined December 2011

Equity received at no cost in a foreign company needs to be disclosed in the Indian income tax return. The fair market value of the equity might be considered taxable as perquisite income.

The equity might be taxed as perquisite income at the time of receipt or only when the shares are sold, depending on tax laws and regulations..

Yes, foreign assets like euity in a UK company need to be declared in Schedule FA of the Income Tax Return(ITR) if the asset value exceeds specified thresholds

Ranjan

1218 Points Joined June 2023

@ Ani L

Your foreign equity receipts have already hppened or yet to happen during this FY?

If it is the latter, then nothing to be reported in this AY Filing.

And for reporting in next year AY, best to wait for clarity next year, since the Direct Taxation laws keep on changing very often.

Receiving equity as a UK CTO has key tax implications. The value of the shares at grant is considered income, subject to Income Tax and National Insurance via PAYE. You may also have a future Capital Gains Tax liability when you sell. For FEMA (India), acquiring foreign assets requires compliance under the Liberalised Remittance Scheme (LRS) for the investment value and any subsequent reporting.

For precise guidance on navigating these rules, consult the experts at Kanakkupillai.

AKHIL KULKARNI

2 Points Joined September 2025

https://incorpadvisory.in/blog/a-complete-guide-to-foreign-esops-for-indian-employees/

Jayesh Business

2 Points Joined September 2025

Great article! GST calculations can definitely get confusing, especially with
different slabs like 5%, 12%, 18%, and 28%.

For anyone who needs a quick way to calculate GST without manual errors,
I use this free tool: https://mygstcalculator.com
It's simple, accurate, and works with both Inclusive & Exclusive GST.