Section 43

Section 43: taxation of foreign exchange fluctuation

Section 43 is the general rule for taxing foreign-exchange gains and losses on business transactions, applying wherever Section 42 (which capitalises exchange variation relating to foreign-currency asset acquisitions) does not apply.

The general rule

Section 43(1) provides that, subject to Section 42, any gain or loss arising from a change in foreign exchange rates on foreign currency transactions is treated as income or loss, and is computed as per the income computation and disclosure standards (ICDS) notified under Section 276(2).

What kinds of transactions are covered

Section 43(2) clarifies that this rule applies to all foreign currency transactions, including those relating to:

Monetary items and non-monetary items.
Translation of financial statements of foreign operations.
Forward exchange contracts.
Foreign currency translation reserves.

Frequently asked questions

How is a forex gain or loss on a business transaction taxed?

It is treated as income or loss and computed as per the income computation and disclosure standards (ICDS) notified under Section 276(2), except where Section 42 requires the variation to be capitalised into an asset's cost instead.