Short answer: yes, if the market price has fallen below your vest-day FMV and you sell, you have a real capital loss, and you can use it to reduce tax on other capital gains.
This is the situation a lot of RSU holders find themselves in: a lot vested when the stock was expensive, tax was withheld on that full vest-day value as salary income, and the price has since dropped.
Once you sell, it converts into a capital loss you can set off against other gains, and carry forward if you don't use it all this year.
This post walks through the mechanics: how the loss is computed, how it can be set off, how long you can carry it forward, and where it's reported on your ITR.
Table of contents
- Why a falling price after vesting creates a usable loss
- Short-term vs. long-term loss, and the set-off rules
- The 8-year carry-forward window, and why filing on time matters
- Where this goes on your ITR
- A worked example
Why a falling price after vesting creates a usable loss
When your RSUs vest, the fair market value (FMV) of the shares on the vesting date is taxed as salary income (a perquisite under Section 17(2)(vi)), and your employer typically deducts TDS on that value under Section 192 of the Income-tax Act before or around the time the shares land in your account.
That same vest-day FMV then becomes your cost of acquisition (your cost basis) for capital gains purposes going forward. This is fixed by Section 49(2AA) of the Income Tax Act: the cost of acquisition for shares already taxed as a perquisite is the fair market value that was taken into account for that perquisite, the same INR figure already reported in your Form 16. Withholding shares to cover the tax bill at vest doesn't change this. Your cost basis is the full pre-withholding FMV, not a reduced number.
So when you eventually sell, your capital gain or loss is simply sale price minus that cost basis. If the stock is now worth less than it was on vest day, the math produces a negative number, a capital loss, not a gain. Importantly, there's no capital gains tax payable on a sale that results in a loss, and that loss may generally be used to offset capital gains elsewhere, subject to the set-off rules below.
Foreign shares, including RSUs of an overseas parent or employer, are treated as unlisted equity shares or securities for Indian tax purposes. That classification is what drives the 24-month holding-period threshold used below, rather than the 12-month threshold that applies to Indian listed shares.
Short-term vs. long-term loss, and the set-off rules
The holding period for classifying an RSU capital loss uses the same clock as an RSU capital gain: measured from the vesting date.
- Shares held up to 24 months from vest date: short-term (STCL if it's a loss).
- Shares held more than 24 months from vest date: long-term (LTCL if it's a loss).
Once you know whether a loss is short-term or long-term, the set-off rules are asymmetric, and this is the part that trips people up:
- A short-term capital loss (STCL) can be set off against both short-term capital gains and long-term capital gains.
- A long-term capital loss (LTCL) can only be set off against long-term capital gains. It cannot be used to reduce a short-term gain.
This ordinary matching rule applies regardless of whether the gain you're offsetting against came from an Indian holding or a foreign one. A capital loss (from RSUs or any other capital asset) can always offset a gain of the same origin, global loss against global gain, or Indian loss against Indian gain.
India also allows cross-border set-off, foreign-asset losses (like your RSU shares) against Indian-asset gains (like Indian stocks or mutual funds), and vice versa, provided both fall under the same head of income (Capital Gains), under Section 70 of the Income Tax Act, 1961 (Section 108 under the Income-tax Act, 2025).
The one restriction on that cross-border matching is the same short-term/long-term asymmetry: a global long-term loss cannot be adjusted against an Indian short-term gain, though a global short-term loss can be adjusted against both Indian short-term and Indian long-term gains.
A capital loss, short-term or long-term, from RSUs or anywhere else, cannot be set off against your salary income or business income. It only works within the Capital Gains head.
The 8-year carry-forward window, and why filing on time matters
If your capital losses for the year exceed your capital gains for the year, you don't lose the unused loss. You can carry the remaining loss forward for 8 years to offset future gains.
Under Section 74 of the Income Tax Act, a capital loss can be carried forward for a maximum of eight assessment years immediately succeeding the assessment year in which the loss was first computed, after which it lapses if unused.
There's a catch, and it's a strict one: to claim the set-off and carry the loss forward at all, you must file your Income Tax Return (ITR-2 or ITR-3, as applicable) on or before the due date. If you file a belated return instead, you lose the right to carry the loss forward, even though the loss itself is real and correctly computed. There's no leniency here specific to RSUs; it's the general rule for all capital losses.
Where this goes on your ITR
Reporting a capital loss from RSU shares (or claiming a brought-forward loss from a prior year) touches three parts of your return:
- Schedule CG: this is where you compute the capital gain or loss on the sale itself, RSU shares included, using your vest-day cost of acquisition and sale value. Capital gains (and losses) on foreign shares are reported here in the ITR-2.
- Schedule CYLA: this schedule adjusts the current year's loss against other current-year income within the rules allowed (for capital losses, that means against other current-year capital gains per the short-term/long-term matching above). Any part of the loss that can't be absorbed this year flows through to Schedule CFL, which records what's being carried forward.
- Schedule BFLA: in a later year, this is where a brought-forward loss from a prior year (the amount you carried forward via Schedule CFL) gets set off against that year's capital gains.
The general sequence above is directionally correct; verify the specific ITR utility fields against the current year's form when filing, since schedule layouts can shift slightly year to year.
A worked example
Example. Suppose you are an RSU holder whose employer's stock vested at a high point and has since come down. 200 shares vested on 1 April 2024, when the FMV was $500 per share and the USD/INR rate was ₹83.
That vest was taxed as salary at the time, and it set your cost of acquisition. You hold on, and by September 2026 (more than 24 months after vesting, so any loss here is long-term) the stock has fallen to $350 per share, with the USD/INR rate now at ₹88. You decide to sell the lot.
| Item | Amount |
|---|---|
| Shares vested (1 April 2024) | 200 |
| Vest-day FMV | $500/share |
| Vest-day USD/INR rate | ₹83 |
| Cost of acquisition (200 × $500 × ₹83) | ₹83,00,000 |
| Sale price (September 2026) | $350/share |
| Sale-day USD/INR rate | ₹88 |
| Sale value (200 × $350 × ₹88) | ₹61,60,000 |
| Total long-term capital loss (sale value − cost of acquisition) | −₹21,40,000 |
This is a long-term capital loss, since the shares were held more than 24 months from vesting. Say in the same financial year you also booked a long-term capital gain of ₹15,00,000 from selling other holdings (other RSU lots, or Indian equity or mutual funds).
Because an LTCL can be set off against LTCG regardless of whether the gain is foreign or Indian (subject to the same head of income), this loss fully absorbs that ₹15,00,000 gain, wiping out the tax on it. The remaining ₹6,40,000 of unused loss isn't wasted either, provided you file your ITR on time, it carries forward and can be set off against long-term capital gains in any of the next 8 assessment years.
The result: no capital gains tax on the sale itself, a ₹15,00,000 gain elsewhere sheltered this year, and ₹6,40,000 of loss banked for future use.
