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CA Final · Direct Tax Laws & International Taxation · Taxation of Digital Transactions

Case: Kaveri Tech Pvt Ltd, an Indian company, has a US subsidiary. Under the Income-tax Act, 2025, how must gains or losses from foreign exchange rate changes on its foreign currency transactions be computed?

The gain or loss is treated as income or loss and computed as per the income computation and disclosure standards notified under section 276(2), subject to section 42. It applies broadly, covering monetary and non-monetary items, translation of foreign operations, forward contracts and translation reserves.

  1. AOnly on actual realisation, ignoring accounting standards
  2. BAs per the income computation and disclosure standards notified under section 276(2), subject to section 42Correct
  3. COnly for monetary items, excluding non-monetary items
  4. DOnly for forward contracts, excluding translation of foreign operations

Explanation

Section 43(1) says gain or loss from change in foreign exchange rates on foreign currency transactions is income or loss, computed per the ICDS notified under section 276(2), subject to section 42. Section 43(2) extends this to monetary and non-monetary items, translation of foreign operations, forward contracts and translation reserves, so the limiting options are wrong.

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