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

Meera Textiles Ltd, an Indian company, has a foreign currency receivable from a Dubai customer. The rupee value of the receivable changed between the date of sale and the year-end because of exchange rate movement. Under the Income-tax Act, 2025, how is the resulting gain or loss treated?

The exchange gain or loss on the foreign currency receivable is treated as income or loss and computed as per the income computation and disclosure standards notified under section 276(2). The Act does not defer it until cash realisation, nor treat it as a capital receipt, because section 43 covers all foreign currency transactions.

  1. AIt is ignored until the receivable is actually realised in cash
  2. BIt is treated as income or loss and computed as per the income computation and disclosure standards notified under section 276(2)Correct
  3. CIt is treated as a capital receipt not chargeable to tax
  4. DIt is taxable only if the receivable relates to a non-monetary item

Explanation

Section 43(1) provides that any gain or loss arising from change in foreign exchange rates on foreign currency transactions is treated as income or loss and computed as per the notified ICDS. It is not deferred to realisation, and it is not a capital receipt. Section 43(2) covers both monetary and non-monetary items, so the last option is wrong.

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