Income Tax Implications of FX Forward Contract

What is the income tax implication of a gain on a FX forward contract that was booked in Jan 2010 and realized in Jan 2011 (slightly less than 1 year)? This is for an Indian resident.

a. Will the gain be added to taxable income and taxed according to tax slab ?

b. Will it be treated as a short term capital gain ?

c. Does it depend on why the hedging was done in the first place ? In other words, will the treatment be the same as the underlying foreign currency transaction that was hedged ?

d. Is it tax-free (that would be lovely :-))?

e. Any other tax treatment ?

Thanks in advance for your responses.

Replies (2)

it will be added to your taxable income and tax will calculate accordingly.

forward contracts are business income, hence taxable as per slab, no capital gain available

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