Capitalising the impact of foreign exchange fluctuation

Irrespective of anything contained in any other provision of this Act, where at the time of making payment during the tax year, there is a variation in liability of an assessee as expressed in Indian currency due to change in rate of exchange in relation to an asset acquired for the purpose of business or profession in foreign currency from a country outside India, it shall be dealt with in the manner specified in sub-sections (2) and (3).

For this section, “variation in liability” shall be computed as— A = B-C where,— 40 A = variation in the liability; B = amount paid in Indian currency (excluding any part met, directly or indirectly, by any other person or authority) during the tax year for acquisition of the asset for— (a) the whole or part of the cost of asset; or (b) repayment of money borrowed along with interest in foreign currency, specifically for acquiring such asset; C = liability, corresponding to the amount referred in B, in Indian currency at the time of acquisition of such asset.

The variation in liability shall be added or reduced from the— (a) actual cost of the asset as referred in section 39; or (b) expenditure of capital nature referred to in section 45(1)(a) or (c) or 32(i); or (c) cost of acquisition of a capital asset (not being capital asset referred to in section 74) for the purpose of section 72, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset.