Foreign exchange fluctuation loss

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 July 2012 Hello,

I, an Indian Proprietor import goods from China. Now I purchased goods on 1st February 2012 of $10000 on 3 months credit. The same will be paid on 1st May 2012. Value of Dollar as on 1st Feb 2012 was say Rs.50 and as on 1st May 2012 it was Rs.56. On 31st March 2012 it was say Rs.55.

Now what shall be the accounting treatment. Also, more importantly, can the Foreign Exchange Fluctuation Loss be claimed in Income Tax Act? If yes, under which section?

CA Rahul Gupta

CA Rahul Gupta (Expert)
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06 July 2012 As per AS-11 Accounting for Foreign Fluctuations.
Accounting Treatment as follows:-
on 1st Feb,
Import Purchase Dr 5L
To Party 5L
on 31st Mar,
Exchange Loss Dr 50000
To Party 50000
on 1st May,
Exchange Loss Dr 10000
To Party 10000

Party Dr 560000
To Bank 560000

P&L A/c Dr 60000
To Exchange Loss 60000

Yes, it will be allowed as per income Tax Act. However disclosure should be made in director's report for the Foreign Exchange outgo in u/s 217(I)(e)as per the companies Act,1956.If you are satisfied Please revert back.

Querist : Anonymous

Querist : Anonymous (Querist)

06 July 2012 Thanks! This is actually a Proprietor(but is liable to Tax & VAT Audit). So do any disclosures have to be made in Tax Audit Report!

And under which section is this allowed in the Income Tax Act? And what if there is a gain instead of loss? Does it have to offered to tax as income?

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CA Rahul Gupta

CA Rahul Gupta (Expert)
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07 July 2012 No disclosure has to be made in Form 3CD.However you can show in Notes to Account.Exchange Loss is allowed u/s 37(1) of the Income Tax Act. Exchange gain is credited to Profit & Loss Account as Income.

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