Which exchange rate do you use to convert foreign income for Indian income tax?

An Indian freelancer, agency or consultant paid in dollars, pounds or euros has to report that income in rupees. The Income-tax Rules say which exchange rate to use, and the answer depends on the type of income, whether the money reached India during the year, and whether you are converting income or a foreign tax credit.

From 1 April 2026 the Income-tax Act, 2025 and the Income-tax Rules, 2026 apply, and "tax year" replaces "previous year" and "assessment year".³ The conversion rule is now rule 206, which the Central Board of Direct Taxes (CBDT) navigator maps to the old rule 115.² Income earned up to 31 March 2026 is still dealt with under the 1961 Act and 1962 Rules. This page explains the 2026 rules; confirm your own figures with a chartered accountant (CA).

What is the exchange rate rule for income tax on foreign income?

The exchange rate rule for income tax on foreign income is rule 206 of the Income-tax Rules, 2026, which converts income accruing, arising or received in foreign currency into rupees at the telegraphic transfer (TT) buying rate of that currency on the "specified date".¹

• TT buying rate: the meaning given in rule 207: the rate adopted by the State Bank of India (SBI) for buying that currency where it is made available to SBI through a telegraphic transfer, having regard to Reserve Bank of India guidelines.¹
• Specified date: depends on the type of income.¹
• Old rule: rule 115 of the Income-tax Rules, 1962.²

Who does rule 206 of the Income-tax Rules, 2026 apply to?

Rule 206 of the Income-tax Rules, 2026 applies to anyone with income in foreign currency, and the specified date changes with the type of income.¹

For a service exporter, the relevant row is business or profession: the last day of the tax year, which is 31 March 2027 for tax year 2026-27.¹³

Does rule 206 apply if the foreign client already paid during the year?

Rule 206 usually does not apply if the foreign client already paid during the year. Rule 206(3) says the conversion rate in sub-rule (1) does not apply to business or professional income (and the other income in that row) where the income is received in, or brought into, India by you or on your behalf before the specified date.¹

• Paid during the year: for example, a web developer who invoices a US client every month and receives the money in an Indian bank account within the tax year is in that position. The rupees credited by the bank are then the natural figure for the books, and any difference from the invoice-date value is an exchange gain or loss.¹⁴
• Not paid by year end: rule 206(1) matters mainly for income that has not reached India by the end of the tax year, for example fees earned and invoiced but still unpaid, or money kept abroad.¹

Your CA will decide how unpaid receivables are valued under your accounting method. See forex gain or loss on exports and tax.

How do you convert foreign income for Indian income tax?

You convert foreign income for Indian income tax by booking invoices under your accounting method, recording receipts at the rupees credited, and treating the difference as an exchange gain or loss.¹⁴ For a consultant paid in dollars:

1. Invoice: book each invoice at the rate on the invoice date under your accounting method.
2. Receipt: record each receipt at the rupees actually credited. Because the money reached India before the end of the tax year, rule 206(1) does not fix a different rate for it.¹
3. Difference: book the difference as an exchange gain or loss, which section 43 of the Income-tax Act, 2025 treats as income or loss.⁴
4. Unpaid invoices: for any invoice unpaid at the year end, follow your CA's year-end valuation.
5. Foreign tax: for any foreign tax withheld, convert it under rule 76 for the credit claim.¹

Keep the bank credit advice or Foreign Inward Remittance Advice (FIRA) for each receipt, and a copy of any SBI rate you rely on.

Which exchange rates and dates apply to foreign income, TDS and foreign tax credit?

The exchange rates that apply are all SBI TT buying rates, on different dates for income, for tax deducted at source and for foreign tax credit.¹

Which exchange rate applies to TDS on foreign currency payments?

The exchange rate for TDS on foreign currency payments is set by rule 207, which applies to income payable to an assessee outside India, or to or by a unit in an International Financial Services Centre, and uses the TT buying rate on the date tax is required to be deducted (or the last published rate if none is published that day).¹ It replaces rule 26 of the 1962 Rules.² An exporter receiving money from abroad is normally not the deductor, so this rule seldom affects you directly.

Which exchange rate applies to foreign tax credit?

The exchange rate for foreign tax credit is set by rule 76 of the Income-tax Rules, 2026, which converts foreign tax at the TT buying rate on the last day of the month immediately preceding the month in which the tax was paid or deducted.¹ Rule 76 replaces rule 128 of the 1962 Rules.² See foreign tax credit and Form 44.

How is the exchange rate applied to foreign income in a worked example?

The exchange rate is applied by picking the rule that matches each figure: receipts at the rupees credited, unpaid year-end income at the specified-date rate, and foreign tax at the rule 76 date.¹

• Receipts: say a consultant is paid in dollars each month into an Indian bank. Each receipt is recorded at the rupees credited, because it reached India before 31 March 2027.¹³
• Unpaid at year end: an invoice still unpaid on 31 March 2027 is the kind of income rule 206(1) addresses, at the TT buying rate on the specified date, subject to your CA's valuation method.¹
• Foreign tax: for example, if a client in another country withholds tax from your invoice in August, the conversion for the credit uses the TT buying rate on 31 July.¹

For conversions while drafting invoices, the currency converter gives indicative rates only; it is not the rate the rules prescribe.

What are the common mistakes with the exchange rate for income tax on foreign income?

The common mistakes with the exchange rate for income tax on foreign income come from applying one rate to every figure.¹

• Year-end rate for everything: converting receipts already credited during the year at the 31 March rate, when rule 206(3) excludes them.¹
• Old rule numbers: citing rule 115 or rule 128 for tax year 2026-27 income.²
• Wrong credit date: using the withholding date itself for foreign tax credit, instead of the last day of the previous month.¹
• Ignoring exchange differences: leaving out the gain or loss that section 43 treats as income or loss.⁴
• No rate record: not keeping a copy of the SBI TT buying rate relied on.¹

Confirm your own figures with a CA.