Selling shares: Form 8949, rupee-to-dollar basis, and a worked example

Most readers meet capital gains through a US broker, where the 1099-B does the work. Indian shares are different: there is no 1099-B, the cost and the sale were in rupees, and the return must be in dollars. This article shows the mechanics. The treatment of Indian mutual funds, and the credit for Indian tax, are in the Indian shares article.

The rule in one sentence

For a US tax resident, a sale of shares is reported in dollars: cost converted at the rate on the purchase date, proceeds converted at the rate on the sale date. The gain is the difference. So the gain contains a currency effect that does not exist in the rupee numbers.

A worked example

You bought 100 shares in India for ₹1,000 each, ₹100,000 in all, when ₹75 equalled $1. You sold them for ₹1,500 each, ₹150,000 in all, when ₹85 equalled $1.

India sees a ₹50,000 gain. The US sees $431. Had you converted the rupee gain at the sale-date rate you would have shown $588, which is more. The rupee fell between the two dates, so part of the rupee gain was lost in currency. If the rupee had risen, the US gain would be larger than the rupee gain suggests. Currency movements can also turn a rupee gain into a dollar loss.

Which rate to use

Use a published rate for the transaction date, and use the same source throughout the return. Many preparers use the RBI reference rate or the US Treasury's published exchange rates. The same rule applies to any foreign currency transaction in the year.

The year-end rate used for FBAR balances is a different rate for a different purpose.

Reporting it: Form 8949 and Schedule D

Sales go on Form 8949, and the totals flow to Schedule D.

• Short-term or long-term. US tax law treats a holding as long-term if you held it for more than one year. India treats listed shares held for more than 12 months as long-term. A sale at exactly 12 months can be long-term in India and short-term in the US.
• Which box. With no Form 1099-B, the sale belongs in the box for transactions not reported to you on a 1099-B: box C for short-term, box F for long-term.
• Each lot separately. Shares bought on different dates have different costs and holding periods, so list them as separate lines or attach a statement.
• Adjustments. Brokerage and other costs of sale go into the basis or proceeds.

What does not match the Indian numbers

• Indian tax year. India runs April to March and the US runs on the calendar year. The sale date decides the US year.
• Different tax treatment. India applies a long-term rate above an annual exemption and a higher short-term rate. The US has its own rates, and the Indian exemption does not exist.
• The credit. A US resident's gain on shares is treated as US-source, which can make the credit for Indian tax unavailable without the treaty re-sourcing rule. This is the step that most often goes wrong. See the credit article.
• Securities transaction tax is not an income tax, so it is not credited. It can be part of your selling cost.

US shares sold by someone with RSUs

For US shares from a stock plan, the broker's 1099-B often shows zero or the wrong basis, even though the correct basis is already in your W-2. The return should show the correct basis with an adjustment on Form 8949. See equity compensation.

Records to keep

1. The contract note for each purchase and sale, with the date.
2. The exchange rate used and where it came from.
3. The Indian tax computation and any TDS certificate.
4. A schedule of lots, with cost, date and result in both currencies.

A foreign-currency gain is still a gain. Do not report the rupee figure as if it were dollars.