Rate of Exchange for Conversion into Rupees of Income Expressed in Foreign Currency
(Rule 115 of the Income-tax Rules, 1962)
Foreign income and capital gains are becoming increasingly common as Indian residents invest in overseas assets such as stocks, bonds, and property. For taxation purposes in India, such foreign currency income must be converted into Indian Rupees (INR). The Income-tax Rules, 1962 provide a specific mechanism under Rule 115 for such conversion.
Legal Framework – Rule 115 Rule 115(1) states that:
“The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency, or received or deemed to be received by him or on his behalf in foreign currency, shall be the Telegraphic Transfer (TT) buying rate of such currency as on the specified date.”
Key Definitions
-
Telegraphic Transfer (TT) Buying Rate
(i) Defined in Rule 26 Explanation.
(ii) Refers to the rate adopted by State Bank of India for purchasing foreign currency by telegraphic transfer. -
Specified Date (depends on the head of income):
(i) Salaries → Last day of the month immediately preceding the month in which salary is due/paid.
(ii) Interest on Securities → Last day of the month immediately preceding the month in which income is due.
(iii) House Property, Business/Profession, Other Sources (general) → Last day of the previous year.
(iv) Business of Shipping (Non-Residents) → Last day of the month preceding accrual.
(v) Dividends → Last day of the month immediately preceding the month of
declaration/distribution/payment.
(vi) Capital Gains → Last day of the month immediately preceding the month in which the capital asset is transferred.
Proviso: Where tax is deducted at source under Rule 26, the specified date becomes the date on which tax is required to be deducted.
Special Note
Rule 115(2) clarifies that where income under House Property, Business/Profession or Other Sources is actually received or brought into India before the specified date, then this conversion rule does not apply. Instead, the actual conversion on receipt is considered.
Practical Application to Capital Gains
Capital gains from foreign shares or assets are a common scenario for resident investors. For such cases:
Flow Chart for Conversion under Rule 115 (Capital Gains)
Step 1 → Identify date of transfer → Determine “specified date” (last day of preceding month).
Step 2 → Apply SBI TT Buying Rate (USD/INR) of that specified date.
Step 3 → Convert sale proceeds, cost of acquisition, and expenses into INR.
Step 4 → Compute Capital Gain in INR.
Step 1: Identify the Date of Transfer (Sale)
• The relevant “specified date” = last day of the month immediately preceding the month of transfer.
Example:
• Sale of Apple Inc. shares on 15th July 2025.
• Specified date = 30th June 2025.
• Use SBI TT Buying Rate (USD/INR) of 30-06-2025.
Step 2: Convert Sale Consideration & Cost of Acquisition
• Sale Consideration → Convert USD sale value using TT buying rate of the specified date.
• Cost of Acquisition → If originally purchased in foreign currency, apply Rule 115 at the time of purchase also.
o Specified date = last day of the month preceding the purchase month.
• Expenses (Brokerage, Commission, etc.) → Converted using the same principle.
Step 3: Compute Capital Gain in INR
Capital Gain=Sale Consideration (INR)–Cost of Acquisition (INR)–Expenses (INR)Capital\ Gain = Sale\ Consideration\ (INR) – Cost\ of\ Acquisition\ (INR) – Expenses\
(INR)Capital Gain=Sale Consideration (INR)–Cost of Acquisition (INR)–Expenses (INR)
2 Comments
Leave a Comment
Nem Singh
In case resident Indian foreign investment in shares, M/S. Havells India Ltd., vs Acit, ITA No.4695/Del/2012 order 10 November, 2020 ITAT Delhi :
In case resident the income derived from whatever source and includes
Sec.5(c) accrues or arises to him outside India during such year
Rule 115 provides for rate of exchange for conversion into Rupees of of income expressed in foreign curre..........
In this case, it provides that a foreign exchange gain arising on the repatriation of foreign currency following the redemption of shares at par in the foreign currency, is not subjected to capital gains tax in India.
The reason is given that there was no on transfer of the shares i.e. gain did not result from an increase in value of the shares, as the shares were redeemed at par. It was merely the result of exchange fluctuations on the repatriation of the proceeds.
The interpretation of Rule 115 "the capital gains in INR is determined as the capital gain in the relevant foreign currency converted at the applicable rate of exchange. In this case the capital gain in EUR was nil hence gain in INR was Nil.
Accordingly, first compute gain or loss in foreign currency, then convert in into NRI to compute gains or loss .
Samarth J
the Rule 115 says convert in INR "the capital gains originally computed in Foreign currency" at the rate specified. It does not say convert the sale proceeds and Cost separately. Based on this reading, the amount of Capital gains will change. Kindly confirm your views.