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

Dhruv Exports Ltd has a foreign subsidiary whose financial statements are translated into rupees, producing a foreign currency translation reserve movement. The CFO asks whether section 43 of the Income-tax Act, 2025 covers it. What is the correct position?

Section 43 applies to translation of financial statements of foreign operations and foreign currency translation reserves. It covers all foreign currency transactions, including monetary and non-monetary items and forward contracts, is subject to section 42, and computation follows the notified income computation and disclosure standards.

  1. ASection 43 excludes translation of financial statements of foreign operations
  2. BSection 43 covers only monetary items settled during the year
  3. CSection 43 applies only to forward contracts
  4. DSection 43 applies to translation of financial statements of foreign operations and foreign currency translation reserves, subject to section 42Correct

Explanation

Section 43(2) lists monetary and non-monetary items, translation of financial statements of foreign operations, forward exchange contracts and foreign currency translation reserves. Section 43(1) is subject to section 42 and computation follows notified ICDS.

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