Revenue Account Fluctuations [Section 43AA with ICDS-VI]
This ICDS applies to foreign exchange differences on revenue items.
Initial Recognition: Recorded at the rate on the transaction date. The average rate can be used unless the rate fluctuates significantly.
Year-End Translation:
➢ Monetary items: Reinstated using closing rate; differences recognised as income/expense
➢ Non-monetary items: Not restated; continue at original rate
➢ Inventory at NRV: Translated using the rate at the date of NRV determination
- Special Cases:
Interest on Securities: Converted using the month-end rate before income due
Business Income: Converted using year-end rate
Other Income: Converted using year-end rate
Dividend: Month-end rate prior to declaration/payment
TDS Income: Rate on the date tax was required to be deducted
- Forward Exchange Contracts
Forward Contract: Agreement to exchange currencies at a future date and a fixed rate
Premium/Discount: Amortised over contract tenure
Exchange Difference:
➢ Same year settlement: Difference from contract inception to settlement
➢ Different year settlement: Difference from last year-end or inception to settlement
Cancellation/Renewal: Gain/loss recognised in the year of occurrence
Not applicable to contracts for speculative/trading purposes or hedges of firm commitments/highly probable forecast transactions.
- Translation of Foreign Operations –Financials of foreign operations are translated using the same method as other foreign currency transactions, treating them as part of the assessee’s own operations.
- For Block of Assets-Foreign exchange gains/losses affecting capital asset cost under Section 43A are adjusted to WDV, regardless of whether capitalised in books.