ESOPs vs RSUs

RSU- Restricted Stock Unit : it is an actual share ESOPs: it is an Option (read Promise) to purchase a share at predefine price.

RSU: when a company assigns you RSUs, they assign a number of RSUs i.e no of shares, which you will get. And there is a vesting schedule, means you have to stay with company for certain duration to earn certain percentage of those Shares. Standard practise is, 100% of the shares vest in 4 yrs, first yr as cliff and 25% vesting, rest vest every month/quarter. But companies might differ from standard practise.

Income tax: as shares are you income. Based of the value of each share at the time of vesting, you are suppose to pay income tax on that. Eg: share value is 1000 INR at the time of vesting, and you vested 250 shares, so you are getting shares worth 250,000 ( which might increase or decrease in future), so you need to pay taxes on this 2.5 lakh amount. His is irrespective of whether you company is publicly listed or private.

ESOPs: when ESOPs are allocated to an employee there is a strike price which is mentioned. This strike price is the amount employee need to pay to purchase a share when they exercise their vested options. Generally vesting schedule of ESOPs is same a RSUs, but companies might differ. Also many companies have limitation in how much time duration after vesting one has to exercise the ESOPs. Normally till the time you are with company this time limit is infinite (or any liquidation event), but as soon as you leave the company a time limit is implemented. This time limit varies from company to company and i have seen it to be anything in between 3 months to 25 yrs after leaving the job.

Tax: on ESOPs you don’t need to pay taxes when they are vested. But you need to pay taxes when to exercise those ESOPs to get the shares. Eg: you strike price is 10 INR, you best esops are 500. Current value of share is 110. So while exercising the esops, you need to pay 500x10 =5000INR to the company in order to get the 500 shares