Sale of foreign shares in Indian Rupees - FEMA rules

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SP Sami (Querist)

04 August 2025 Indian resident selling his foreign co shares to an OCI (Indian - American) receiving the consideration in Indian Rupees from the OCI's bank account in India. Is there any RBI norms required to be followed by the seller of the shares (Indian resident). on income tax angle Seller is ready to pay his capital gain tax on sale of shares.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

12 August 2025 1. FEMA / RBI Regulations
Sale of Foreign Shares by Indian Resident:
Under FEMA, a resident Indian can sell foreign shares subject to certain conditions.
Since the buyer is an OCI (Overseas Citizen of India), who is considered a person of Indian origin but holding foreign citizenship, the transaction is treated like a capital transaction involving foreign exchange.
Key Points:
Consideration received in Indian Rupees in India is allowed.
The sale proceeds should ideally be repatriated through a proper banking channel.
The bank handling the transaction will follow KYC/AML guidelines and report the transaction to RBI.
No prior RBI approval is usually required if:
The transaction is a sale of foreign shares held as per FEMA rules.
The remittance is through Authorized Dealer bank in India.
The seller should ensure that the shares sold were originally acquired in compliance with FEMA (e.g., through permissible foreign exchange remittance or inheritance).
2. Income Tax Implications
The Indian resident seller is liable to pay capital gains tax on the sale of foreign shares.
The capital gains will be computed in Indian Rupees (considering cost of acquisition and sale value converted to INR).
The seller must report the sale in the Income Tax Return (ITR).
TDS provisions may apply depending on the buyer and transaction.
The buyer being an OCI is treated as a non-resident for income tax purposes, but the sale from resident to OCI doesn’t generally attract withholding if payment is from Indian bank account.
3. Practical Steps for Compliance
Use an Authorized Dealer (AD) bank in India to receive sale proceeds.
Maintain documentation:
Proof of acquisition of foreign shares.
Sale agreement.
Bank statements showing receipt of payment.
File income tax return disclosing capital gains and pay tax accordingly.
Ensure FEMA compliance by reporting the transaction, if required, through the bank.

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