Non-residents investing in Indian securities face the complexity of foreign exchange fluctuations impacting their capital gains. Section 72(6) of the Income Tax Act, 2025 provides a special computation mechanism for non-residents, and Rule 52 of the Income Tax Rules, 2026 specifies the applicable foreign exchange rates【52†L0】. Understanding these provisions is essential for non-resident taxpayers.
The Statutory Framework
Section 72(6)
Section 72(6) provides that in the case of an assessee who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company (other than equity shares referred to in Section 198) shall be computed【72†L6】:
- By converting the cost of acquisition, expenditure incurred, and the full value of consideration into the same foreign currency as was initially utilised in the purchase
- The capital gains so computed in such foreign currency shall be reconverted into Indian currency
Rule 52
Rule 52 specifies the rate of exchange for conversion of rupees into foreign currency and reconversion of foreign currency into rupees for the purpose of computing capital gains under Section 72【52†L0】.
The Rate of Exchange
Telegraphic Transfer Rates
The conversion shall be at the telegraphic transfer buying rate and telegraphic transfer selling rate【52†L0】.
Telegraphic Transfer Buying Rate: The rate or rates of exchange adopted by the State Bank of India for buying such currency, where such currency is made available to that bank through a telegraphic transfer【207†L0】.
Telegraphic Transfer Selling Rate: The rate of exchange adopted by the State Bank of India for selling such currency where such currency is made available by that bank through telegraphic transfer【52†L0】.
Application of Rates
| Circumstance | Rate of Exchange |
|---|---|
| Converting cost of acquisition | Average of TT buying rate and TT selling rate as on the date of acquisition【52†L0】 |
| Converting expenditure on transfer | Average of TT buying rate and TT selling rate as on the date of transfer【52†L0】 |
| Converting full value of consideration | Average of TT buying rate and TT selling rate as on the date of transfer【52†L0】 |
| Converting capital gains into rupees | TT buying rate as on the date of transfer【52†L0】 |
The Computation Methodology
Step 1: Convert Cost of Acquisition
Cost of acquisition in foreign currency = Cost in rupees ÷ Average of TT buying rate and TT selling rate as on the date of acquisition
Step 2: Convert Expenditure
Expenditure in foreign currency = Expenditure in rupees ÷ Average of TT buying rate and TT selling rate as on the date of transfer
Step 3: Convert Full Value of Consideration
Consideration in foreign currency = Consideration in rupees ÷ Average of TT buying rate and TT selling rate as on the date of transfer
Step 4: Compute Capital Gains in Foreign Currency
Capital Gains (Foreign Currency) = Consideration (Foreign Currency) − Cost of Acquisition (Foreign Currency) − Expenditure (Foreign Currency)
Step 5: Convert Capital Gains to Rupees
Capital Gains (Rupees) = Capital Gains (Foreign Currency) × TT buying rate as on the date of transfer
Practical Example
Scenario
A non-resident acquired shares of an Indian company for ₹10,00,000 on 1 April 2020 when the exchange rate was ₹75 per USD. The shares were sold for ₹15,00,000 on 1 April 2026 when the exchange rate was ₹85 per USD. Expenditure on transfer was ₹50,000.
Step 1: Cost of Acquisition in USD
Average rate on date of acquisition = (75 + 75)/2 = 75 Cost in USD = 10,00,000 ÷ 75 = 13,333.33 USD
Step 2: Expenditure in USD
Average rate on date of transfer = (85 + 85)/2 = 85 Expenditure in USD = 50,000 ÷ 85 = 588.24 USD
Step 3: Consideration in USD
Consideration in USD = 15,00,000 ÷ 85 = 17,647.06 USD
Step 4: Capital Gains in USD
Capital Gains = 17,647.06 − 13,333.33 − 588.24 = 3,725.49 USD
Step 5: Capital Gains in Rupees
Capital Gains = 3,725.49 × 85 = 3,16,666.65 INR
Applicability
Securities Covered
The foreign exchange rate provisions apply to:
- Shares in an Indian company (other than equity shares referred to in Section 198)
- Debentures of an Indian company
Taxpayers Covered
The provisions apply to:
- Non-resident individuals
- Non-resident companies
- Any other non-resident taxpayer
Expert Legal Guidance
Understanding the foreign exchange rate provisions for non-resident capital gains is essential for non-resident taxpayers. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping non-residents compute capital gains correctly and ensure compliance with foreign exchange rate provisions.