I have some leftover savings in a US money-market fund amounting to about $2,200.This was from the time I used to work there between 1996 and 2002.

I returned to India in 2002 and have been an Indian resident since. Now I plan to redeem this and close the US fund, but I have a query on how to compute the tax on it when it’s brought back to India.

Purchase-side details: Date: September, 26, 2002; Amount: $2,200; NAV: $1; Shares: 2,200.

If I sell the above now, sell-side details will be: Sell date: current date; Amount: $2,200; NAV: $1; Shares sold: 2,200.

That is, in US dollar terms, there has beenno gain at all since it’s a money-market fund and the NAV is always $1.

But when it is converted to Indian rupee and indexation is applied on it, it will look like this: Exchange rate on buy side: 48.51; Exchange rate on sell side: 65.04 ; Unindexed cost: $2,200 x 48.51 = ₹1,06,722 ; Indexed cost: ₹1.06,722 x 272/105 (assuming 272 is the current year’s CII figure) = ₹2,76,460.80; Sale amount: 2,200 x 65.04 = ₹1.43,097.02.

Even though there has been no gain in dollar terms, when I convert to rupee and apply indexation, it is actually coming to a loss: 1,46,097.02 - 2,76,460.80 = -1,33,363.78.

Can you please help clarify if I am correct in computing gains/losses as above?

Deva

From the fact pattern, we infer that you would qualify as a tax resident in India for financial year 2018-19 and accordingly be taxable on your worldwide income.

Consequently, redemption of funds from the money market would be considered transfer of capital asset in accordance with Section 45 of the Income Tax Act, 1961, and any resultant gains be subjected to tax in India.

For the purpose of determining the value of gain in Indian rupees, the foreign currency value is to be converted using State Bank of India Telegraphic Transfer (SBI TT) buying rate of such currency on the last day of the month immediately preceding the month in which the capital asset is transferred as per Rule 115 of the Income Tax Rules, 1962.

In other words, the capital gain has to be calculated in the currency of transaction and then converted into Indian rupees.

In the instant case, there is no capital gain on account of redemption in US dollars since both the cost of acquisition and the cost of sale are same, and consequently no capital gains in Indian rupee as well.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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