TaxTMI 
TaxTMI 
VI - Effects of changes in foreign exchange rates (w.e.f. AY 2017-18)
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....f 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 exchange rates in force during a period. (b) ....
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....e; (i) "Forward rate" is the specified 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) "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; (l) "Non-monetary items" are assets and liabilities other than monetary items. Fixed assets, inventories, and investments in equity shares are examples of non-monetary items; (m) "Reporting currency" means Indian currency except....
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....t 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. (d) non-monetary item being inventory which is carried at net realisable value denominated in a foreign currency shall be reported using the exchange rate that existed when such value was determined. Recognition of Exchange Differences 5. (i) In respect of monetary items, exchange differences arising on the settlement thereof or on con....
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....or speculation purposes; and (b) is entered into to establish the amount of the reporting currency required or available at the settlement date of the transaction. (3) The provisions of sub-para (1) shall not apply to the contract that is entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction. For this purpose, firm commitment, shall not include assets and liabilities existing at the end of the previous year. (4) The premium or discount that arises on the contract is measured by the difference between the exchange rate at the date of the inception of the contract and the forward rate specified in the contract. Exchange difference on the contract is the....