Income generated from difference in foreign currency
This query is : Resolved
Guest
Guest
(Querist)
17 December 2011
Income generated towards Difference in Foreign currency for Credit Sale whether taxable or not. Explain with Example
CA PARAS BAFNA
(Expert)
18 December 2011
As per AS11, debtors and creditors are to be shown in the Balance Sheet by applying exchange rate prevailing on the BS date and are shown in terms of Rupees( Reporting Currency).
However, where the closing rate is say Rs50/ per US$, but expected realisation is @ Rs51/ per USD, such profit is not taxable.
.
When Goods sold USD rate was Rs. 49/- and the closing rate (31.03.20XX) is 50/-
and the exporter is likely to get @ 50 or more for 1 USD .....the exchange difference results into profit @ Re 1 per USD.
However when he is likely to get 49.50 per USD on realisation, the difference of Re .50 per USD will be taxable.
.
Summary-
Debtors are to be reported on the basis of Closing Rate or following the conservative principle, at a lesser rate keeping in view the realisations.
Exchange difference arising due to this -is deemed as normal profit (loss).
However, where the closing rate is say Rs50/ per US$, but expected realisation is @ Rs51/ per USD, such profit is not taxable.
.
When Goods sold USD rate was Rs. 49/- and the closing rate (31.03.20XX) is 50/-
and the exporter is likely to get @ 50 or more for 1 USD .....the exchange difference results into profit @ Re 1 per USD.
However when he is likely to get 49.50 per USD on realisation, the difference of Re .50 per USD will be taxable.
.
Summary-
Debtors are to be reported on the basis of Closing Rate or following the conservative principle, at a lesser rate keeping in view the realisations.
Exchange difference arising due to this -is deemed as normal profit (loss).
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