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CA Final · Direct Tax Laws & International Taxation · Capital Gains

A non-resident, Mr. Kapoor, bought shares of an Indian company for Rs 6,00,000 using US dollars, when the average of the SBI telegraphic transfer buying and selling rates was Rs 60 per USD. He sold them for Rs 12,00,000 and incurred Rs 40,000 of transfer expenses wholly and exclusively for the transfer. On the date of transfer the average of the TT buying and selling rates was Rs 80 per USD and the TT buying rate was Rs 79 per USD. Applying Rule 52 of the Income-tax Rules, 2026, what is the capital gain in rupees?

The capital gain is Rs 3,55,500. Under Rule 52, cost is converted at the average rate on acquisition (USD 10,000), while consideration and expenses use the average rate on transfer (USD 15,000 and USD 500). The USD 4,500 gain is converted at the TT buying rate of Rs 79 on the transfer date.

  1. ARs 3,55,500Correct
  2. BRs 3,60,000
  3. CRs 5,60,000
  4. DRs 2,70,000

Explanation

Cost = 6,00,000/60 = USD 10,000 (average rate on acquisition date). Sale consideration = 12,00,000/80 = USD 15,000 and expenses = 40,000/80 = USD 500 (average rate on transfer date). Gain = 15,000 – 10,000 – 500 = USD 4,500, reconverted at the TT buying rate on the transfer date: 4,500 × 79 = Rs 3,55,500. Using the average rate of Rs 80 for reconversion gives Rs 3,60,000, which is wrong.

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