Cost Basis Carry-Forward u/s 49(2AA): Why Your Capital Gain Is Not Full Sale Price

Short answer: Under s.49(2AA) ITA 1961, where shares acquired under an employee stock option plan or RSU plan have already been taxed as a perquisite on allotment/vest, the cost of acquisition for capital gains is the FMV on the allotment date — the same value already brought to tax. The practical effect: your capital gain is sale price − FMV at vest, not the full sale price. Without s.49(2AA), an RSU (which has a ₹0 exercise price) would show a cost basis of ₹0 and the entire sale value would be taxed again — a textbook double taxation that the section exists to prevent. In ITR-2 Schedule CG, enter the FMV at vest as your cost; do not enter ₹0.

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The rule in one line

Cost of acquisition = FMV on the date the shares were allotted/vested and the perquisite was taxed.

Why the double-tax disappears

At vest/exercise, you paid tax on the FMV (RSU) or FMV − exercise price (ESOP). That FMV is economic value you have already been taxed on. When you sell, the only new gain is the appreciation from that FMV to the sale price. s.49(2AA) makes the FMV your cost basis so the new gain is computed against it.

Worked example: Meera's RSUs

Persona: Meera, 50 RSUs vest on 10 July 2025. FMV at vest ₹4,000 per share (taxed as perquisite in FY 2025-26). She sells all 50 on 15 January 2026 at ₹5,500.

Correct computation (s.49(2AA)):

• Sale proceeds = 50 × ₹5,500 = ₹2,75,000


• Cost of acquisition = 50 × ₹4,000 = ₹2,00,000


• Capital gain = ₹75,000

Wrong computation (cost = ₹0, the classic error):

• Sale proceeds = ₹2,75,000


• Cost = ₹0


• Capital gain = ₹2,75,000 — the ₹2,00,000 already taxed as perquisite is taxed again.

Rate: sold ~6 months after vest → short-term. For Indian-listed STT-paid shares, 20% under s.111A → ₹75,000 × 20% = ₹15,000 (correct) vs ₹2,75,000 × 20% = ₹55,000 (wrong). The ₹40,000 difference is pure double-tax.

Where this bites in the ITR

The error usually happens in Schedule CG of ITR-2/ITR-3, where employees enter ₹0 (or the grant price) as cost. The correction:

• Schedule CG — cost of acquisition: enter the FMV at vest (per s.49(2AA)), not ₹0.
• Keep the vest statement (FMV, date, per-share value) from the employer/broker as proof.
• The same FMV must match the perquisite figure in your salary schedule (Form 16 Part B) — a mismatch invites a query.

When does s.49(2AA) apply?

The section applies where shares were acquired under an employee stock option plan or a stock-based scheme — including RSUs and ESOPs — and the FMV on allotment/vest was already charged to tax as a perquisite under s.17(2)(vi). When both conditions hold, the cost of acquisition for the capital-gains computation is that FMV, and the date of acquisition is the vest/allotment date — not the grant date. If no perquisite was taxed (for example, shares bought in the open market), s.49(2AA) does not apply and your cost is what you actually paid.

The connection to s.17(2)(vi) is what makes the rule self-consistent: the Act taxes the benefit at vest, then refuses to tax it again at sale by stepping up your cost.

What to keep as proof

When the AO asks how you arrived at the cost basis, the answer must be documentary:

• The vest/allotment statement showing FMV per share, the date, and the number of shares;
• The Form 16 Part B line where the perquisite was declared (the same FMV figure);
• The sale contract note showing the sale price and date;
• For foreign shares, the TT buying rate on the vest date used for the INR conversion.

Keep these with your tax papers for at least 8 years — the period for which the AO can reopen the assessment.

Why this catches people by surprise

The error is not lazy — it is intuitive. RSUs have a ₹0 exercise price, so a trader who thinks in "what did I pay" terms concludes the cost is zero and reports the full sale value as gain. That instinct ignores the separate salary-leg tax that already happened at vest. The fix is always the same: pull the vest-date FMV, not the grant price and not zero, and match it to the perquisite in Form 16 Part B before filing Schedule CG.

Frequently Asked Questions

1. What is the cost of acquisition for RSUs?

The FMV on the vest date (per s.49(2AA)), because that FMV was already taxed as a perquisite. It is never ₹0.

2. Does s.49(2AA) apply to ESOPs too?

Yes. For ESOPs, the cost basis is the FMV on the allotment date — the value on which the perquisite (FMV − exercise price) was taxed.

3. I entered ₹0 as cost in Schedule CG last year. Can I fix it?

File a revised/updated return within the permissible window to correct the cost basis and claim the refund of the double-taxed amount. Act before the limitation window closes.

4. Is my cost basis the grant price or the vest price?

The vest/allotment price (FMV). The grant price is irrelevant for RSU cost basis — RSUs have no exercise price, and the perquisite was taxed at vest FMV.

5. Where do I find the FMV at vest for my ITR?

On your employer's vest statement, the brokerage (E*TRADE/Schwab) statement, or the grant portal. For foreign shares, convert the USD FMV at the TT buying rate on vest date.

6. Does s.49(2AA) apply to ESPP shares?

For ESPP, the analogous rule uses the FMV at purchase as the cost basis (the discount is the perquisite). The double-tax-protection logic is the same — see ESPP Discount Taxed as Perquisite.

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Get the cost basis right in Schedule CG

Enter the FMV at vest as cost and compute the real gain with the ESOP Tax Calculator — it reproduces the s.49(2AA) math so you never file a ₹0-cost, double-taxed return again.

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Last verified: 2026-08-08.
Sources: Sections 49(2AA), 45, 48, 111A, 17(2)(vi) ITA 1961; Income-tax Rules, 1962 (Rule 3(8)); ITR-2 Schedule CG instructions.
Reviewer: pending CA sign-off. Draft status — do not publish before CA review.

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