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.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

- 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.

Capital Gains Calculation for Schedule CG:

• 
  Buy Price (INR): 75,000 INR (10 shares x 100 USD x 75 INR/USD)
• 
  Sell Price (INR): 166,000 INR (10 shares x 200 USD x 83 INR/USD)
• 
  Gain: 83,000 INR (Sell Price - Buy Price)

For reporting in ITR, use the above INR values for buy and sell prices as per Method 2, which aligns with Rule 115 for foreign income. No indexation is applicable as the shares are denominated in USD. Tax rate for long-term capital gains is 20% plus cess/surcharge.

For detailed, personalized advice, consider a phone consultancy. Hope you find the information helpful. You are free to contact me for further discussion. If you could spare two minutes of your time to write a review, it would be greatly appreciated and bring immense happiness to read it. Thank you. Shubham Goyal.

Hi,

Thanks for the follow up question !

Yes, your approach is correct for converting and reporting values in Schedule CG of the ITR form to reflect calculations using Method #2, which ensures the capital gains are computed accurately. Here's a step-by-step explanation:

Given:

• 
  Quantity: 10
• 
  Sell Price in USD: 200
• 
  Buy Price in USD: 100
• 
  SBI TT Buy Rate: 83 (rate for converting USD to INR)

Methodology for Reporting:

1. Sell Price (INR):

   • Convert the sell price to INR: $$\text{Sell Price (INR)}=\text{Quantity}\times \text{Sell Price in USD}\times \text{SBI TT Buy Rate}$$ $$=10\times 200\times 83=166,000$$
     

2. Buy Price (INR):

   • Convert the buy price to INR: $$\text{Buy Price (INR)}=\text{Quantity}\times \text{Buy Price in USD}\times \text{SBI TT Buy Rate}$$ $$=10\times 100\times 83=83,000$$
     

3. Capital Gains (INR):

   • The capital gain is the difference between the sell price and the buy price: $$\text{Capital Gains (INR)}=\text{Sell Price (INR)}-\text{Buy Price (INR)}$$ $$=166,000-83,000=83,000$$
     

Reporting in Schedule CG:

• 
  Buy Price (INR): ₹83,000
• 
  Sell Price (INR): ₹166,000
• 
  Capital Gains (INR): ₹83,000

This aligns perfectly with Method #2, where the gain is calculated as:

$$10\times (200-100)\times 83=83,000$$

Why is this Approach Correct?

This approach maintains the integrity of the conversion process:

1. It adheres to the logic of computing gains using the difference in USD prices.
2. It ensures all values are consistently converted to INR using the same exchange rate (SBI TT Buy Rate).

Final Confirmation:

Your gain matches the Method #2 calculation, and this method is compliant with the guidelines for reporting in Schedule CG, as you convert both buy and sell prices into INR before computing the capital gain.

Yes, this is the correct approach.

Based upon date of acquisition and date of transfer of capital asset, the amount shall be punched into LTCG part as below:

1. Buy Value: 10x100x83=83,000

2. Sell Value: 10x200x83=166,000

LTCG shall be auto calculated.