21 July 2016
Capital Gains on Equity shares investment under Liberalized remittance scheme. NOTE: The gains are in USD and not yet been converted to INR (repatriated).
So how do I know what rate to convert at, when the duration of transactions is between Apr 1, 2015 and Mar 31, 2016.
31 July 2024
When dealing with income or capital gains in foreign currencies (such as USD) for filing income tax returns in India, you need to convert the amounts into Indian Rupees (INR). The conversion rate used for this purpose depends on the nature of the income and the specific regulations applicable for the financial year. Here’s a detailed guide on how to handle the conversion and what rates to use:
### **1. Conversion Rate for Filing Tax Returns**
**Conversion Rate Determination:**
- **Income Received in Foreign Currency:** For tax purposes, income or capital gains received in foreign currency needs to be converted into INR using the exchange rates prescribed by the Income Tax Department.
**Conversion Rates Used:**
1. **For Income and Capital Gains:** - **Exchange Rate on the Date of Transaction:** Ideally, for transactions such as the sale of equity shares, the conversion rate to be used is the **rate prevailing on the date of the transaction**. - **Rate for the Financial Year:** If specific transaction rates are not available, you can use the **average exchange rate for the financial year** provided by the Reserve Bank of India (RBI) or the Income Tax Department.
2. **Relevant Rates:** - **RBI Reference Rates:** The RBI publishes reference rates for various currencies, including USD to INR. For the financial year in question, you can use the RBI's reference rates for accurate conversion. - **Income Tax Department Rates:** The Income Tax Department sometimes provides specific conversion rates or guidelines for taxpayers. Check for any notifications or circulars from the department for the applicable financial year.
### **2. Specific Case: Capital Gains Under LRS**
**Handling Capital Gains in USD:**
- **Liberalized Remittance Scheme (LRS):** When dealing with investments made under the LRS and gains from those investments, the general approach is to: - **Determine the Date of Transaction:** Convert the purchase and sale amounts into INR using the exchange rate on the respective transaction dates. - **Calculate the Gains:** Compute the capital gains by converting both the cost of acquisition and the sale proceeds into INR.
**Conversion Example for the Financial Year April 1, 2015, to March 31, 2016:**
1. **Identify the Dates:** - Determine the dates of the transactions (purchase and sale) of the equity shares.
2. **Use Exchange Rates:** - **On the Transaction Dates:** Convert the amount of purchase and sale into INR using the USD-INR exchange rate on the specific transaction dates. - **Average Rate:** If daily rates are not available, you can use the average exchange rate for the financial year from the RBI or official sources.
3. **Refer to RBI Data:** - For the financial year 2015-16, you can refer to the RBI’s published exchange rates for USD to INR.
**Resources to Check Exchange Rates:**
- **Reserve Bank of India (RBI):** Check RBI’s historical exchange rates on their website. - **Income Tax Department’s Official Notifications:** Look for any specific notifications or circulars regarding the exchange rates for capital gains reporting.
### **3. Filing the Tax Return:**
**Steps to Follow:**
1. **Convert All Amounts:** - Convert all amounts of income, gains, and expenses from USD to INR using the applicable exchange rates.
2. **Report in INR:** - Report the converted amounts in INR in your Income Tax Return (ITR).
3. **Documentation:** - Maintain records of the exchange rates used, and documentation of transactions to substantiate your calculations in case of any queries from the Income Tax Department.
### **Summary:**
- **Conversion Rate:** Use the exchange rate on the date of each transaction or the average exchange rate for the financial year as provided by the RBI or the Income Tax Department. - **Documentation:** Keep detailed records of exchange rates and transactions for accurate reporting and compliance. - **Resources:** Refer to the RBI's historical exchange rates and any specific guidelines issued by the Income Tax Department for the financial year in question.
By following these guidelines, you can ensure accurate conversion and reporting of your foreign income and capital gains.
CAclubindia
