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

Nimbus Tech Pvt Ltd has a Singapore subsidiary. For the tax year it has a forward exchange contract and a foreign currency translation reserve arising from consolidating the subsidiary's statements. Which statement about section 43 of the Income-tax Act, 2025 is correct?

Section 43(2) makes the foreign exchange fluctuation rule applicable to all foreign currency transactions, including monetary and non-monetary items, translation of foreign operations' financial statements, forward exchange contracts and foreign currency translation reserves. So the option stating the full coverage is correct.

  1. ASection 43 applies only to monetary items and excludes non-monetary items
  2. BSection 43 applies to all foreign currency transactions, including forward exchange contracts, translation of foreign operations' financial statements and foreign currency translation reservesCorrect
  3. CSection 43 excludes forward exchange contracts, which are taxed only on delivery
  4. DSection 43 applies only to translation of financial statements and not to reserves

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 as covered. Hence options excluding any of these are wrong.

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