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VI - Effects of changes in foreign exchange rates (w.e.f. AY 2017-18)

ICDS - 06 - Income computation and disclosure standards - w.e.f. AY 2017-18 - Other Direct Tax Provisions - ICDS - 06 - F. Income Computation and Disclosure Standard VI relating to the effects of changes in foreign exchange rates (Vide notification no. 87/2016 dated 29-9-2016 w.e.f. Assessment Year 2017-18) Preamble This Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head "Profits and gains of business or profession" or "Inc .....

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ign 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) "Closing rate" is the exchange rate at the last day of the previous year. (c) "Exchange difference" is the difference resulting from reporting the same number of units of a foreign currenc .....

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in or requires settlement in a foreign currency, including transactions arising when a person:- (i) buys or sells goods or services whose price is denominated in a foreign currency; or (ii) borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency; or (iii) becomes a party to an unperformed forward exchange contract; or (iv) otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency. (h) "Forward ex .....

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eld 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 for foreign operations where it shall mean currency of the country where the operations .....

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average rate for a week or a month that approximates the actual rate at the date of the transaction may be used for all transaction in each foreign currency occurring during that period. If the exchange rate fluctuates significantly, the actual rate at the date of the transaction shall be used. Conversion at Last Date of Previous Year 4. At last day of each previous year:- (a) foreign currency monetary items shall be converted into reporting currency by applying the closing rate; (b) where the .....

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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 t .....

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shall be subject to provisions of section 43A of the Act or Rule 115 of Income-tax Rules, 1962, as the case may be. Financial Statements of Foreign Operations 7. The financial statements of a foreign operation shall be translated using the principles and procedures in paragraphs 3 to 6 as if the transactions of the foreign operation had been those of the person himself. Forward Exchange Contracts 8. (1) Any premium or discount arising at the inception of a forward exchange contract shall be amo .....

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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 excha .....

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