TaxTMI 
TaxTMI 
TaxTMI 
Effects of Changes in Foreign Exchange Rates - only for AY 2016-17
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....m other sources" and not for the purpose of maintenance of books of accounts. In the case of conflict between the provisions of the Income-tax Act, 1961 ('the Act') and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent. Scope 1. This Income Computation and Disclosure Standard deals with: (a) treatment of transactions in foreign currencies; (b) translating the financial statements of foreign operations; (c) treatment of foreign currency transactions in the nature of forward exchange contracts. Definitions 2. (1) The following terms are used in this Income Computation and Disclosure Standard with the meanings specified: (a) "Average rate" is the mean of the ....
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....ified exchange rate for exchange of two Currencies at a specified future date; (j) "Indian currency" shall have the meaning as assigned to it in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999); (k) "Integral foreign operation" is a foreign operation, the activities of which are an integral part of the operation of the person; (l) "Monetary items" are money held and assets to be received or liabilities to be paid in fixed or determinable amounts of money. Cash, receivables, and payables are examples of monetary items; (m)"Non-integral foreign operation" is a foreign operation that is not an integral foreign operation; (n) "Non-monetary items" are assets and liabilitie....
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....nces or the closing rate being unrealistic and it is not possible to effect an exchange of currencies at that rate, then the relevant monetary item shall be reported in the reporting currency at the amount which is likely to be realised from or required to disburse such item at the last date of the previous year; and (c) non-monetary items in a foreign currency shall be converted into reporting currency by using the exchange rate at the date of the transaction. Recognition of Exchange Differences 5. (i) In respect of monetary items, exchange differences arising on the settlement thereof or on conversion thereof at last day of the previous year shall be recognised as income or as expense in that previous year. (ii) In respect of non-mone....
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.... are primarily paid or settled in the local currency; (e) the foreign operation's sales are mainly in currencies other than Indian currency; (f) cash flows of the person are insulated from the day-to-day activities of the foreign operation; (g) sales prices for the foreign operation's products or services are not primarily responsive on a short-term basis to changes in exchange rates but are determined more by local competition or local government regulation; (h) there is an active local sales market for the foreign operation's products or services, although there also might be significant amounts of exports. Integral Foreign Operations 8. The financial statements of an integral foreign operation shall be translated using ....
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....tion is financed and operates in relation to the person may lead to a change in the classification of that foreign operation. Forward Exchange Contracts 11. (1) Any premium or discount arising at the inception of a forward exchange contract shall be amortised as expense or income over the life of the contract. Exchange differences on such a contract shall be recognised as income or as expense in the previous year in which the exchange rates change. Any profit or loss arising on cancellation or renewal shall be recognised as income or as expense for the previous year. (2) The provisions of sub-para (1) shall apply provided that the contract: (a) is not intended for trading or speculation purposes; and (b) is entered into to establish th....