Amended and updated notes on section 43AA of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to taxation of foreign exchange fluctuation.
Chapter IV (Sections 14 to 59) of the Income Tax Act 1961 deals with the provisions related to computation of total income. Section 43AA of IT Act 1961-2023 provides for taxation of foreign exchange fluctuation.
Recently, we have discussed in detail section 43A (special provisions consequential to changes in rate of exchange of currency) of IT Act 1961. Today, we learn the provisions of section 43AA of Income-tax Act 1961. The amended provision of section 43AA is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 43AA of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-43AA: Taxation of Foreign Exchange Fluctuation
Section 43AA(1) of Income Tax Act
(1) Subject to the provisions of section 43A, any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss, as the case may be, and such gain or loss shall be computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145.
Section 43AA(2) of Income Tax Act
For the purposes of sub-section (1), gain or loss arising on account of the effects of change in foreign exchange rates shall be in respect of all foreign currency transactions, including those relating to—
- (i) monetary items and non-monetary items;
- (ii) translation of financial statements of foreign operations;
- (iii) forward exchange contracts;
- (iv) foreign currency translation reserves.