Comparison of Section 42 "Capitalising impact of foreign exchange fluctuation" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

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....sessing capital costs and subsequent depreciation or capital gains. Effective date or enactment timing: Not stated in the document. Background & Scope Statutory hooks: Clause 42 is framed within the heads "Profits and gains of business or profession" and interacts by cross-reference with other sections identified in the clause (notably section 39, section 45(1)(a) or (c), section 32(i) and section 72, per the Bill text). The provision aims to treat variations in liability arising from changes in exchange rates when payments are made in relation to assets acquired from countries outside India. Definitions or explanations: The Bill provides a computation mechanism for "variation in liability" by the formula A = B - C, and describes B and C....

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....or the purpose of section 72. The resultant amount shall be taken as the actual cost or amount of capital expenditure or cost of acquisition as applicable. Subsection (4) provides a special rule where the assessee has a forward contract or booking with an authorised dealer under FEMA: for so much of the contracted sum available to discharge the liability, the amount to be added or deducted shall be computed with reference to the contract exchange rate specified therein. Interpretation Legislative intent as indicated: The clause intends to align tax accounting for capital costs with economic reality of exchange rate movements - i.e., to capitalise gains or losses arising from exchange rate variation into the cost base of assets or capital....

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....ing/valuation rules: Not stated in the document.) Interplay The clause explicitly interacts with section 39 (actual cost), section 32(i)/section 45(1)(a)/(c) (capital expenditure references), section 72 (carry forward/set-off for capital losses), and section 74 (exceptions). It also references the definition of "authorised dealer" in section 2 of FEMA, 1999 for the forward-contract exception. Beyond these cross-references, detailed rules, procedural guidance, or aligning amendments to rules/circulars: Not stated in the document. Differences between Section 42 of the Income-tax Act, 2025 and Clause 42 of the Income Tax Bill, 2025 - (Old Version) * Scope of exclusion for amounts met by third parties: The Act (Section 42) expressly....

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.... such asset;". Practical impact: The Act emphasises "payment expressed in Indian currency at the time when it is made" and explicitly includes repayments of moneys borrowed "directly or indirectly" whereas the Bill's wording is marginally narrower in phrasing ("amount paid ... during the tax year for acquisition of the asset for..."). The Act's explicit phrase "expressed in Indian currency at the time when it is made" clarifies conversion timing and may reduce interpretive disputes on which conversion rate applies at payment. * References to provisions where capital expenditure appears: The Bill (Clause 42) lists subsection (3)(b) as "expenditure of capital nature referred to in section 45(1)(a) or (c) or 32(i);" whereas the Ac....

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....lier is non-resident). The Bill's phrasing was clearer in expressly limiting to foreign-currency denominated transactions; the Act relies on the mechanics to convey the same effect. * Computation formula and labels: Both use A = B - C but Bill defines B and C in slightly different terms and locations. The Act explicitly labels B and C lines with parentheses and clarifies inclusion of repayments "directly or indirectly" in subsection (2). The Bill places the exclusion of third-party payments inside B and specifies "during the tax year". Practical impact: The Act's explicit "at the time when it is made" language and clearer placement of exclusions may aid administrability and reduce disputes about conversion date and scope of exc....