#TaxmannAnalysis | Deposited Money in a US Brokerage Account? – How Should the Forex Gain Be Taxed?
CA. Naveen Wadhwa Vice-President –Taxmann’s Advisory & Research
CA. Naveen Wadhwa Vice-President –Taxmann’s Advisory & Research
With the Liberalised Remittance Scheme (LRS) enabling Indian residents to remit up to USD 2,50,000 per financial year, a growing number of Indian investors have opened brokerage accounts in the USA to invest in stocks listed on the NYSE and NASDAQ. This momentum gained in recent years, largely after the wide adoption of AI. Since ChatGPT’s launch, the Indian Rupee (INR) has depreciated against the US Dollar from approximately Rs. 81 per USD in November 2022 to over Rs. 96 per USD in May 2026. Thus, even if no single trade is placed, the INR-equivalent value of the deposited funds may have increased simply due to exchange rate movements.
This article analyses the tax treatment of foreign exchange fluctuation gains for a resident salaried individual who converts INR to USD and deposits the funds into a US brokerage account. The taxation of foreign exchange gains depends on two factors: whether it is income. And if yes, under which head will this income be taxable?
1. What Is an Income?
Section 2(49) of the Income-tax Act, 2025 (corresponding to Section 2(24) of the ITA 1961) defines “income” in an inclusive manner. This means that the items specifically listed in this section are considered income, but the scope of ‘income’ is not restricted only to these items. Anything that can be described as ‘income’ in its natural and grammatical sense is considered income unless expressly exempted. Further, all capital receipts are exempt from income tax unless specifically chargeable to tax, such as capital gains. Thus, a capital receipt will be charged to tax if it is specifically covered within the definition and one of such inclusions is in sub-clause (k) of Section 2(49) that brings ‘capital gains’ within the scope of ‘income’.
2. When Does the Capital Gain Arise?
The capital gains arise only on the transfer of a ‘capital asset’. Section 2(22)(a) of the ITA 2025 [corresponding to Section 2(14) of the ITA 1961] defines ‘capital asset’ as “property of any kind held by an assessee, whether or not connected with his business or profession,” subject to specific exclusions such as stock-in-trade, personal effects, and agricultural land. The word ‘property’ has been interpreted by the Court in its widest amplitude, encompassing every possible interest a person can acquire, hold, or enjoy.
Foreign currency held by an individual for investment purposes does not fall within any of these exclusions. The Mumbai ITAT 1 explicitly held that foreign currency is a capital asset and that any profit or loss arising from fluctuations in the exchange rate must be treated as a capital gain or loss. Therefore, USD held in a US brokerage account squarely qualifies as a capital asset.
3. When Does the Gain Become Taxable?
‘Transfer’ of the capital asset is the prerequisite to charge the resultant capital gains to tax. Section 2(109) of the ITA 2025 (corresponding to Section 2(47) of the ITA 1961) provides an inclusive definition of “transfer” in relation to a capital asset, which includes “sale, exchange or relinquishment of the asset.” The act of converting USD back to INR constitutes an “exchange” of the foreign currency (USD) for Indian currency (INR), thereby qualifying as a “transfer” of a capital asset.
Thus, a mere appreciation of USD value while funds remain in the US brokerage account does not trigger a taxable event. The gain crystallises and becomes taxable only upon the actual conversion of the USD, either to purchase an asset (e.g., stocks) or to convert it back to INR.
1 Dy. CIT vs. Mrs. Mayurika S. Poddar [1997] 59 TTJ 372 (Mumbai)
4. How to Compute Tax on Forex Gains?
Rule 206 of the Income-tax Rules, 2026 [corresponding to Rule 115 of the Income-tax Rules, 1962] prescribes the telegraphic transfer buying rate (TTBR) of the State Bank of India on the last day of the month immediately preceding the month of transfer for converting capital gains into INR. As there are multiple variables for computing capital gains, such as consideration, cost of acquisition, and expenses in connection with the transfer, converting each variable on the relevant date would have been administratively challenging. Thus, Rule 206 provides a cut-off date and requires the conversion of the final capital gains earned in foreign currency into INR. This methodology may result in non-taxation of certain forex gains as the conversion is done on a presumptive basis. Similarly, in the case of forex loss due to INR appreciation, this loss will not be available for set-off.
This Rule 206 will not apply where the foreign currency is converted into INR, as no capital gain is earned in the foreign currency. Thus, the exchange rate prevailing on the date of conversion should be considered for computing the capital gains from such conversion.
Illustration
Mr A, a resident salaried individual, undertakes the following transactions through his US brokerage account:
(a) 01-04-2025: Converts Rs. 8,30,000 into USD 10,000 at an exchange rate of Rs. 83/USD and deposits it into his US brokerage account.
(b) 15-04-2025: Invests the entire USD 10,000 in purchasing 100 shares of ABC Inc. at USD 100 per share on the NYSE. Exchange rate on this date: Rs. 85/USD.
(c) 01-07-2026: Sells 60 shares of ABC Inc. at USD 150 per share. Sale proceeds of USD 9,000 are credited to his brokerage wallet. Exchange rate on the cut-off date (30-062026): Rs. 98/USD.
(d) 01-01-2027: Converts USD 5,000 from his brokerage wallet into INR. Exchange rate on this date: Rs. 99/USD, and the remaining USD 4,000 remains in the brokerage wallet.
(e) 40 shares of ABC Inc. remain unsold as of 01-01-2027.
The tax implications of each event are analysed below:
price per share [G]
value of consideration [H = F * G]
150
9,000 Cost of acquisition per share [I]
100 Total cost of acquisition [J = F * I]
Capital gain in USD [K = H – J]
3,000
Conversion rate on the cut-off date (30-06-2026) [L] Rs. 98/USD
Short-term capital gain from sale of shares2 [M = K * L]
Exchange rate on the date of conversion [N]
2,94,000
99/USD USD converted into INR [O]
5,000 Short-term capital gain on conversion of USD into INR [P = O * (N – L)]
Total short-term capital gains in the FY 2025-26 [Q = E]
Total short-term capital gains in the TY 2026-27 [R = M + P]
5,000
20,000
The USD 4,000 that continues to remain in Mr. A’s brokerage wallet has not been converted to INR or used to acquire any other asset. Since no ‘transfer’ has occurred, there is no taxable event. Tax will arise only when this USD is eventually converted to INR or utilised for a purchase. Until then, any appreciation or depreciation in its INR equivalent value is merely notional and not chargeable to tax. Similarly, as he continues to hold 40 shares of ABC Inc and no sale or transfer has taken place, there is no capital gains event. The capital gains on these shares will arise only when they are eventually sold or otherwise transferred.
5. Reporting and Compliance Requirements
A salaried individual holding a US brokerage account must comply with certain reporting obligations. The foreign brokerage account and all investments held therein must be disclosed in Schedule FA (Foreign Assets) of the income-tax return every year, regardless of whether any income was earned. Capital gains from foreign sources must be reported under Schedule CG and Schedule FSI. Failure to disclose foreign assets can attract severe penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. It is, therefore, essential to maintain records of all remittance dates, exchange rates, purchase and sale transactions, and conversion details.
2 Shares listed on a foreign stock exchange (e.g., NYSE or NASDAQ) are treated as unlisted securities for Indian income-tax purposes. Consequently, the holding period threshold for classifying the gain as long-term is 24 months (not 12 months, which applies to shares listed on Indian exchanges).
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