Last updated: 27 October 2026 · By Analyst, Platizio Global
The rupee weakened against the US dollar in 2026 and touched a record low in May, Reuters reported. For an Indian resident investing in US shares, the exchange rate changes two things: what each new dollar costs you, and what your US holdings are worth in rupees. This post explains why the rupee has been under pressure, how exchange-rate moves feed into your rupee return, and what they mean for the LRS limit, TCS and tax. It does not forecast the rupee.
Key takeaways
- Costly oil, record foreign selling of Indian shares and high US interest rates have weighed on the rupee; the RBI raised its repo rate to 5.50% on 7 October.
- Your rupee return is the dollar return combined with the change in the exchange rate, so a weaker rupee adds to it and a stronger rupee takes from it.
- The LRS limit is set in dollars (US$250,000 a financial year) and the TCS threshold in rupees (₹10 lakh), so how many dollars ₹10 lakh buys depends on the rate on the day.
- Currency moves can become part of your taxable gain, depending on how the conversion rule is read; ask a chartered accountant.
Why has the rupee been falling in 2026?
Reuters and the RBI point to three pressures:
- Oil. India imports most of its oil, and the price is paid in dollars. When oil is dear, importers need more dollars, which weighs on the rupee.
- Foreign selling. Foreign portfolio investors sold a net ₹3,08,358 crore of Indian shares in 2026 to 22 October (NSDL). Leaving means selling rupees for dollars.
- US rates. The Federal Reserve raised its target range to 3.75%–4.00% on 16 September, and the 10-year Treasury yield reached 5.31% on 5 October, its highest since May 2002 (US Treasury data). Higher US yields pull money into dollars.
What the RBI has done
- Commitment: “orderly adjustments to the exchange rate that are in sync with the underlying macroeconomic fundamentals and curbing excessive volatility” (Governor’s statement, 7 October 2026).
- Rate rise: repo rate up 0.25 point to 5.50% on 7 October.
- Reserves: they fell from US$785.7 billion on 4 September (RBI) to US$734.6 billion on 2 October, a drawdown Reuters linked to dollar sales and currency swaps, and to US$726.0 billion on 9 October.
How the exchange rate changes your return
Your rupee return combines what the shares do in dollars with what the dollar does against the rupee (currency risk). A hypothetical example, before costs and tax:
| Shares in US$ | Dollar against the rupee | Your return in ₹ |
|---|---|---|
| +10% | +5% (rupee weakens) | about +15.5% |
| +10% | −5% (rupee strengthens) | about +4.5% |
| −10% | +5% (rupee weakens) | about −5.5% |
| −10% | −5% (rupee strengthens) | about −14.5% |
Hypothetical figures to show the arithmetic: (1 + dollar return) × (1 + change in rupees per dollar) − 1. They are not past or expected returns.
A weaker rupee has the opposite effect on money you have yet to send: each new dollar costs more rupees.
What it means for the LRS, TCS and tax
LRS and TCS. The LRS lets a resident individual send up to US$250,000 a financial year abroad, including to GIFT City platforms. Tax collected at source (TCS) is nil on the first ₹10 lakh of investment remittances in a financial year; banks collect 20% on the amount above that, credited against your tax. Because one limit is in dollars and the other in rupees, the rupee value of the LRS limit, and the dollars that ₹10 lakh buys, move with the exchange rate.
Tax: currency gains may be taxable. Capital gains are worked out in rupees. Rule 206 of the Income-tax Rules, 2026 converts foreign-currency income at SBI’s telegraphic transfer (TT) buying rate (rule 207) on the last day of the month before the sale. One method converts the cost at the purchase-date rate and the sale value at that Rule 206 rate, so the rupee’s fall becomes part of your taxable gain; another converts only the dollar gain, at one rate. The point is unsettled, so ask a chartered accountant. Hypothetical example: shares bought for US$10,000 when the bank’s TT buying rate is ₹85 and sold for the same US$10,000 when it is ₹90 give a taxable gain of ₹50,000 under the first method and nil under the second.
No hedging with LRS money. Overseas portfolio investment “shall not be made in... any derivatives unless otherwise permitted by Reserve Bank” (RBI’s Overseas Investment Directions, 2022), and LRS money cannot meet margin calls on overseas exchanges (RBI LRS FAQ).
Rupee currency derivatives on Indian exchanges sit outside the LRS. Since 10 October 2026, a user’s positions above US$5 million across all exchanges need proof of an underlying exposure, down from US$100 million (RBI). They are leveraged and not covered here.
Conversion costs. Banks convert at their own selling rate, which sits above the RBI’s reference rate for the day; comparing the rate on your remittance advice with that day’s reference rate shows the markup. GST on the conversion (CGST rule 32(2)(b)) and any remittance fee come on top.
Sources9
- Reserve Bank of India: Governor’s Statement (7 October 2026) — https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=63744
- Reserve Bank of India: Risk Management and Inter-Bank Dealings, A.P. (DIR Series) Circular No. 25 (10 October 2026) — https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13737&Mode=0
- Reserve Bank of India: Weekly Statistical Supplement extract (16 October 2026; reserves to 9 October) — https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=63819
- Reserve Bank of India: Liberalised Remittance Scheme FAQs — https://www.rbi.org.in/Scripts/FAQView.aspx?Id=115
- Income Tax Department: Rule 206, Income-tax Rules, 2026 — https://www.incometaxindia.gov.in/w/rule-206-1
- NSDL: FPI net investment, calendar year 2026 (up to 22 October 2026) — https://www.fpi.nsdl.co.in/web/Reports/Yearwise.aspx?RptType=6
- Federal Reserve: Federal Reserve issues FOMC statement (16 September 2026) — https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm
- US Department of the Treasury: Daily Treasury Par Yield Curve Rates, 2026 — https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2026
- The Economic Times (Reuters): Rupee nears record low despite RBI hike, governor says markets can be irrational (7 October 2026) — https://m.economictimes.com/markets/forex/forex-news/rupee-nears-record-low-despite-rbi-hike-governor-says-markets-can-be-irrational/articleshow/134763067.cms
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