Income Computation and Disclosure Standard (ICDS) VI – The Effects of Changes in Foreign Exchange Rates
ICDS-VI governs the computation of income from foreign currency transactions, translation of financial statements of foreign operations, and accounting for forward exchange contracts.
- Scope-The standard covers:
Treatment of foreign currency transactions
Translation of foreign operation financials
Forward exchange contracts
It does not apply to capital assets governed by Section 43A. Foreign exchange gains/losses (excluding those under Section 43A) are taxed under Section 28 or allowed under Section 37(1), and computed in accordance with ICDS-VI.
- Definitions
Foreign Currency Transaction: Transaction denominated or settled in foreign currency.
Monetary Items: Cash, receivables, payables, etc.
Non-Monetary Items: Fixed assets, inventory, equity investments, etc.
- Capital Account Fluctuations [Section 43A]
Arise when capital assets (depreciable or not) are acquired from outside India for business/profession and are not paid for immediately.
Exchange differences arising at the time of payment or loan repayment are adjusted in the asset’s actual cost or WDV.
Adjustments are made in the year of payment, regardless of accounting method.