Forex loss on investment made in India.

 The question of whether a non-resident investor can be taxed on losses in their investment currency in shares in India has been a matter of legal debate for several years. Initially, in 1990, a special concession for non-resident Indians (NRIs) was introduced to address the issue of fluctuations in the Indian Rupee's value vis-à-vis foreign currencies. This concession ensured that foreign exchange gains would not trigger capital gains taxation in India. Over time, this concession was extended to all non-residents.

Despite fluctuations in the taxation rates on capital gains on investments and variations in the calculation methods, the fundamental position on the taxation trigger remained unchanged. Thus, the answer to whether a non-resident investor can be taxed on losses in their investment currency in shares in India would be a resounding "no."

However, a recent judgment by the Income Tax Appellate Tribunal in the Legatum Ventures Ltd vs. ACIT case has altered this scenario. The judgment challenges the previous approach and raises interesting questions about computing taxable capital gains for foreign investors. By invoking the principle of generalia specialibus non-derogant (meaning that a special provision in a law on a subject excludes the operation of a general provision on the same subject), the ITAT has read down the method of calculating capital gains under the first and second provisos to Section 48. Instead, it has applied the mechanism embedded in Section 112(1)(c), which prescribes the tax rate, to compute capital gains. As a result, not only will long-term capital gains be taxed according to Section 112(1)(c), but the computation of income under the head of capital gains will also be based on this section, rendering the first and second provisos to Section 48 redundant.

While the ITAT has already ruled on the matter, it is likely to be appealed and eventually travel to higher courts. It is therefore essential to examine the legal position and explore the various aspects of this legal issue further