Treatment of forex loss in gross income tax computation

Treatment of forex loss in gross income tax computation

sources of income, if the expenses exceed the gross income, the loss is not deductible against any other sources of income and it cannot be carried forward. The said loss is disregarded. Computation of adjusted income/loss from a business source File Size: KB /9/13 · But the treatment of exchange loss in computation of Taxable profits was once a grey area which then got decided in favour of the assessee by Supreme Court in the popular CIT vs. Woodward Governor case. The ruling was that the assessee can claim the forex loss depending on the regular method of accounting employed by him /12/14 · Step 2: Ascertain whether the Exchange Fluctuation is on Revenue/ Capital Account: Exchange Fluctuations arises on Revenue Account: The exchange fluctuations which are not related to acquisition, installation, disposition of any capital asset, such fluctuations are treated to

Forex loss in Tax Laws : Evil Lurks

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SAIRAM13 September Share. Our Income Tax law leaves the method of accounting to be desired by the assessee. The insistence is only on the consistency of the method of accounting employed over substantial number of years.

Any claim of deduction towards Business expenditure is allowed based on the cash basis or accrual or hybrid system of accounting as adopted by assessee. But the treatment of exchange loss in computation of Taxable profits was once a grey area which then got decided in favour of the assessee by Supreme Court in the popular CIT vs. Woodward Governor case. The ruling was that the assessee can claim the forex loss depending on the regular method of accounting employed by him.

The halcyon days ended partly with the introduction of Finance act In an attempt to align with the then Schedule VI of the Companies ActSec. This section mandated capitalization of exchange loss to an asset where there is an increase in a foreign currency liability due to exchange rate fluctuation when such loss arises at the time of actual payment towards the cost of asset or repayment of the liability.

The impact is only on the exchange loss relating to capital assets, but the above SC ruling will still hold well as far as the forex loss on account of revenue expenditure is concerned.

Thankfully, history repeats itself under Sec. Despite the respite, danger still lurks from the viewpoint of assessees. If there is an amendment similar as above the massive benefit of claiming huge exchange losses on revenue expenses will be eroded. This is especially treatment of forex loss in gross income tax computation when it is a period of recession where the interest rates go up and in parallel there is depreciation in home currency as well.

Balance sheet date. It may be noted that the MCA notification amending AS to provide for accumulation and amortization of exchange differences on other than long term liability in a separate reserve is permissible only until There could also be another whammy here. Currently assessees have not been required to add back the exchange loss while computing Book profits under Sec. In Chapter V of the Direct Tax code Bill too, the computation of Book profit same as earlier Sec.

Exchange fluctuation being an uncertain component of a foreign exchange transaction clearly is an endangered species. All these days the department was not able to raise the issue respecting the above opinion of Supreme Court on estimated exchange losses. It would be terrific if such amendments open the Pandora Box by allowing the same interpretation to be carried over in calculation of Book profits under MAT provisions. This can be well treatment of forex loss in gross income tax computation. Also Sec.

This got also reflected the same way in computation of Book profits for MAT. The form may be different but the underlying stand is well established. There could be one positive if tax law happens to thrust the same rule of forex loss deduction on revenue expenditure.

Importers may tend to refrain from withholding or delaying their import payments beyond the taxation year end to avoid the disallowance. Already our FEMA Foreign Exchange Management act requires payment of all import Bills within a period treatment of forex loss in gross income tax computation 6 months or else the importer is answerable for any interest obligations.

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Treatment of Exchange Fluctuation under Income Tax Laws

The treatment of forex gain/loss under the provisions of IT Act is guided by the residuary provisions and general provisions for majority of the time. The gains were taxed under the charging section that dealt with PGBP1 and losses were claimed under Section 37 of IT Act. However, the gains that were arising from transactions which are capital in nature, the tax payer was not ready to offer any tax stating that such gains are capital profits and not to be taxed. On a similar footing, the Revenue tried to disallow losses arising from transactions which are capital in nature, stating that capital losses sources of income, if the expenses exceed the gross income, the loss is not deductible against any other sources of income and it cannot be carried forward. The said loss is disregarded. Computation of adjusted income/loss from a business source File Size: KB /6/25 · The actual profit or loss will be equal to the position size multiplied by the pip movement. Let's look at an example: Assume that you have a , GBP/USD position currently trading at