Capital Gains on Foreign Equity

•Method 2 for gain calculation aligns with Rule 115.

•Gains are long-term (> 24 months).

•Indexation is applied on the INR value using the Cost Inflation Index.

•Tax on long-term gains is 20% + applicable surcharge/cess.

For detailed, personalized advice, consider a phone consultancy.

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- Method 2

- Calculate indexed cost in USD

For detailed discussion you may opt for phone consultation

When dealing with the sale of foreign Restricted Stock Units (RSUs) in India, it's essential to understand the tax implications, including the calculation of capital gains, determination of holding periods, and the applicability of indexation benefits.

1. Determining the Holding Period:

For foreign shares, the holding period is calculated from the vesting date to the sale date. If this period exceeds 24 months, the gains are considered Long-Term Capital Gains (LTCG); otherwise, they are Short-Term Capital Gains (STCG). In your case:

• 
  Vesting Date: July 1, 2022
• 
  Sale Date: July 7, 2024
• 
  Holding Period: Approximately 24 months and 6 days

Since the holding period exceeds 24 months, the gains qualify as LTCG.

2. Calculating Capital Gains:

The capital gains are calculated by converting both the sale proceeds and the cost of acquisition into Indian Rupees (INR) using the appropriate exchange rates and then determining the difference.

• Cost of Acquisition:

  • 
    Fair Market Value (FMV) on Vesting Date: $100 per share
  • 
    Number of Shares: 10
  • 
    Exchange Rate on Vesting Date: ₹75/USD
  • 
    Total Cost in INR: 10 shares × $100/share × ₹75/USD = ₹75,000

• Sale Consideration:

  • 
    FMV on Sale Date: $200 per share
  • 
    Number of Shares Sold: 10
  • 
    Exchange Rate on June 30, 2024 (last day of the preceding month): ₹83/USD
  • 
    Total Sale Proceeds in INR: 10 shares × $200/share × ₹83/USD = ₹166,000

• Capital Gains:

  • 
    Without Indexation: ₹166,000 (Sale Proceeds) - ₹75,000 (Cost) = ₹91,000

3. Applicability of Indexation:

Indexation adjusts the cost of acquisition for inflation, thereby reducing the taxable capital gains. For foreign shares held for more than 24 months, indexation benefits are typically available. However, the Finance Act 2023 introduced changes affecting the taxation of certain assets, including the removal of indexation benefits for some long-term capital assets acquired after April 1, 2023. Given that your RSUs vested on July 1, 2022, and were sold on July 7, 2024, it's crucial to verify whether these changes impact your specific situation.

4. Tax Rates:

• 
  LTCG on Foreign Shares: Traditionally taxed at 20% with indexation benefits. However, due to recent legislative changes, it's advisable to consult the latest tax provisions or a tax professional to determine the applicable tax rate and benefits for your case.

5. Exchange Rate Considerations:

According to Rule 115 of the Income Tax Rules, 1962, the conversion of foreign currency transactions into INR for capital gains purposes should be done using the Telegraphic Transfer Buying Rate (TTBR) of the State Bank of India on the last day of the month preceding the month in which the transaction took place. This aligns with your understanding and the methods discussed in the ITAT Mumbai order you referenced.