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CMA Final · Direct Tax Laws and International Taxation · Income Computation and Disclosure Standards (ICDS)

Under section 43 of the Income-tax Act, 2025, to which of the following does the computation of gain or loss from changes in foreign exchange rates, as per the ICDS, expressly extend?

The rule covers all foreign currency transactions. Section 43(2) expressly includes monetary and non-monetary items, translation of financial statements of foreign operations, forward exchange contracts and foreign currency translation reserves. It is not limited to monetary items, settled transactions or hedging contracts.

  1. AOnly monetary items outstanding at the year end
  2. BOnly transactions settled during the tax year
  3. CMonetary and non-monetary items, translation of financial statements of foreign operations, forward exchange contracts and foreign currency translation reservesCorrect
  4. DOnly forward exchange contracts entered into to hedge capital assets

Explanation

Section 43(2) says the provisions apply to all foreign currency transactions, including monetary and non-monetary items, translation of financial statements of foreign operations, forward exchange contracts and foreign currency translation reserves. The other options restrict the scope and are therefore wrong.

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