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TMI BlogTreatment of foreign exchange fluctuations in tax law: Clause 42 of Income Tax Bill, 2025 vs. Section 43A of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Bill, 2025, introduces provisions for capitalizing the impact of foreign exchange fluctuations on the acquisition of assets for business or professional purposes. This clause is significant as it directly affects the computation of profits and gains from business or profession by adjusting the cost of assets based on exchange rate variations. The clause aims to provide a structured approach t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat any variation in liability due to changes in exchange rates should be accounted for in the manner specified in the subsequent sub-sections. This provision applies irrespective of other provisions in the Act, highlighting its overriding nature. Sub-section (2): Computation of Variation in Liability This sub-section provides the formula for calculating the variation in liability. The formula, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions. It stipulates that the exchange rate specified in such contracts should be used to compute the adjustment to the asset's cost, ensuring consistency and predictability in financial reporting. Practical Implications Clause 42 has significant implications for businesses engaged in international transactions. It affects how businesses account for asset costs and capital expenditures, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion methods in both provisions are similar, focusing on the difference between the amount paid and the liability at acquisition. However, Clause 42 provides a more detailed formula. * Adjustment Mechanism: Both provisions allow for adjustments to the asset's cost, but Clause 42 includes specific references to sections (clauses) 39, 45, and 72 for determining the adjusted cost. * Contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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