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

  1. 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.

  2. 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)