Morgan Stanley RSU India Tax Filing — Complete ITR-2 Guide (FY 2025-26)

Morgan Stanley handles equity plans for employees of hundreds of US-listed companies through two platforms — Morgan Stanley At Work for active equity plan participants, and Morgan Stanley E*TRADE for brokerage accounts where vested shares are held. Both produce the same underlying tax obligation for Indian residents: perquisite income at vesting under Section 17(2) of the Income Tax Act, and capital gains on any subsequent sale.

The split between At Work and E*TRADE confuses a lot of filers. Your RSU grant and vesting history lives in At Work (or the Stock Plan Connect portal). After shares vest, they transfer to your E*TRADE account. For Schedule FA purposes, both accounts may need to be disclosed separately — and the data you need for Schedule CG often requires pulling information from both.

Morgan Stanley At Work vs E*TRADE — What Each Platform Shows

Morgan Stanley At Work (accessed via stockplanconnect.com or your employer's equity portal) shows your grant history, vesting schedule, and the FMV on each vest date. This is the data you need for computing the cost of acquisition for capital gains and the initial value for Schedule FA A3.

Morgan Stanley E*TRADE (etrade.com) shows your brokerage account — the shares that transferred post-vesting, any sales you made, dividends received, and cash balances. The Gain/Loss report in E*TRADE is useful as a starting point but uses US cost basis rules, not Indian Rule 115 rates. Do not use the E*TRADE gain/loss figure directly in your ITR.

Stage 1 — Perquisite at Vesting

On each vesting date, the FMV of shares transferred to you is perquisite income under Section 17(2)(vi). Your employer uses the SBI TT Buy rate under Rule 115 to compute this in INR and deducts TDS as part of your monthly salary. This is already captured in your Form 16 — you are not required to separately recompute or re-declare it in Schedule CG.

What vesting does is fix your cost of acquisition. Under Section 55(2)(fb), the cost of shares received as a perquisite is the FMV on the date of vesting — not the grant date, not the date of sale, not a historical average.

Stage 2 — Capital Gains on Sale

When you sell shares from your E*TRADE account, the capital gain or loss is computed as sale proceeds minus cost of acquisition — both converted to INR at the appropriate Rule 115 rates. The holding period starts from the vest date and determines whether the gain is short-term or long-term.

The applicable section for LTCG on foreign listed equity — which includes all US-listed company shares held through Morgan Stanley — is Section 112 of the Income Tax Act. Section 112A, which carries the Rs. 1.25 lakh annual exemption, applies only to equity listed on Indian stock exchanges where STT has been paid. US-listed company shares held through Morgan Stanley do not qualify for the Section 112A exemption.

The Finance Act 2024 changed the LTCG rate under Section 112 from 20% with indexation to 12.5% without indexation, effective July 23, 2024. Surcharge and 4% Health and Education Cess apply on top of the base rate.

Sell-to-Cover in Morgan Stanley E*TRADE

Morgan Stanley E*TRADE executes a sell-to-cover transaction when RSUs vest — selling a portion of vested shares to fund the employer's TDS withholding obligation. From your tax perspective, this is a sale on the vest date (or within a day or two), generating a Short-Term Capital Gain because the holding period is zero or near-zero days.

In E*TRADE, find these in Accounts → Transactions → filter by "Sold". Sell-to-cover entries often show a description like "Shares withheld for taxes" or "Tax withholding sale". The number of shares sold in sell-to-cover will be less than the total number vested — the remainder is what appears in your E*TRADE account as a holding.

Multiple Vesting Events — Each Lot is Independent

Morgan Stanley accounts for employees with quarterly or annual vesting schedules often have 4-12 vest events per year. Each is a separate lot with its own vest date, FMV, cost basis, and holding period. You cannot average across lots. If you sold shares in March 2026 from a mix of lots vested in 2023 and 2025, some of those lots are LTCG and some are STCG — they go into different sub-schedules in Schedule CG.

In E*TRADE's Gain/Loss report, select "Tax lots" view to see each vest tranche separately. Download this as CSV. Match each row back to the At Work vest history to verify the FMV column. Then apply the Rule 115 rate for each transaction independently.

Dividend Income from Morgan Stanley Holdings

If the company whose shares you hold pays dividends, Morgan Stanley will credit them to your E*TRADE account. These dividends are taxable in India under Schedule OS (Other Sources) at your applicable slab rate.

US withholding tax is deducted at source — typically 25% under US domestic law, which may be reduced under the India-USA DTAA for qualifying residents. You can claim the US tax withheld as a foreign tax credit in India by filing Form 67 under Rule 128 before or along with your ITR. The credit is limited to the Indian tax payable on the same dividend income.

Your E*TRADE 1099-DIV equivalent (Tax Documents section) shows gross dividends and US tax withheld. Convert both to INR at the Rule 115 rate for the relevant month and report in Schedule OS and Form 67 respectively.

Schedule FA — Disclosing Morgan Stanley Accounts

Schedule FA follows the calendar year — January 1 to December 31. For the ITR filed for FY 2025-26, you disclose your Morgan Stanley positions as they stood during CY 2025.

A2 — Foreign Custodial Accounts

Report your Morgan Stanley E*TRADE account under A2. You need the account details, the peak balance during the calendar year (highest aggregate value including shares and cash on any single day), and the closing balance on December 31. Both figures in INR at the applicable Rule 115 rate. If you also have a separate MS At Work account with a cash or stock balance, that may need to be disclosed separately.

A3 — Foreign Equity Holdings

Report each company's shares under A3. For each holding: company name, country of incorporation (USA), date of first acquisition, initial value (FMV on first vest date × Rule 115), peak value during CY 2025 (highest single-day closing price × shares held × Rule 115 rate on the applicable month-end), and closing value on December 31, 2025.

If you hold shares across multiple vest tranches in the same company — say, four quarterly vests of MSFT — treat them as a single consolidated holding in A3, with the initial value being the FMV of the earliest lot. Peak and closing values reflect the total holding, not individual lots.

Where Each Item Goes in ITR-2

Common Morgan Stanley Filing Errors

Using the E*TRADE gain/loss figure directly. E*TRADE uses US GAAP cost basis rules — FIFO by default, in USD. This is not the same as the Indian Rule 115 lot-by-lot computation. The E*TRADE figure is a starting reference, not a filing-ready number.

Reporting only the E*TRADE brokerage account in Schedule FA. If you also have shares under the At Work plan that have not yet transferred to E*TRADE (unvested or recently vested), those holdings may also constitute a foreign asset disclosure. Consult your CA on the specific timing.

Missing sell-to-cover in Schedule CG. Already covered above. Worth repeating because it is the most common omission.

Wrong exchange rate for dividends. Dividends also require Rule 115 rates — the SBI TT Buy rate for the preceding month-end of the month in which the dividend was credited. Do not use the rate provided in the E*TRADE tax document.

Filing Form 67 after the ITR due date. The Supreme Court in Wipro Limited v. DCIT confirmed that Form 67 is a mandatory requirement for claiming foreign tax credit — not just procedural. Filing it after the return removes your right to the credit for that year.