Section 43A - Asset Purchased in Foreign Currency (Forex Fluctuation)
# Section 43A: Forex Fluctuation on Imported Assets
When a capital asset is acquired from a country outside India with consideration payable in foreign currency, the rupee value of the liability can move between the date of acquisition and the date of actual payment. Section 43A tells us how to handle that gain/loss.
## The Rule
Profit or loss arising due to foreign exchange fluctuation is adjusted to the cost of the asset — but only at the time of actual payment (not at year-end on a notional basis).
Situation
Adjustment
Profit (rupee strengthens, liability falls)
Reduce from cost of asset
Loss (rupee weakens, liability rises)
Add to cost of asset
## Key Points to Remember
Adjustment is on payment basis, not accrual basis. Marked-to-market notional gains/losses at year end are ignored for tax purposes under this section.
The adjusted cost flows into the block of assets, so future depreciation is computed on the adjusted figure.
Section 43A overrides the general accounting treatment under AS-11 / Ind AS 21 for income-tax purposes.
Worked example
### Example 1
Example: Imported machine purchased for USD 1,00,000 on 1.4.PY at Rs. 75/USD. Cost recorded = Rs. 75,00,000. Payment made on 1.10.PY when rate is Rs. 78/USD.
Actual rupee outflow = Rs. 78,00,000. Forex loss = Rs. 3,00,000.
Adjustment: Add Rs. 3,00,000 to cost of asset. Revised cost = Rs. 78,00,000. Future depreciation is computed on Rs. 78,00,000.
### Example 2
Example (favourable movement): Same facts, but rate on payment date is Rs. 73/USD. Rupee outflow = Rs. 73,00,000. Forex gain = Rs. 2,00,000.
Adjusting forex differences on accrual / year-end MTM basis instead of on actual payment.
Reversing the direction — adding profit to cost or reducing cost for loss.
Treating forex loss as a revenue expenditure under Sec 37(1) instead of capital adjustment under Sec 43A.
Failing to recompute depreciation on the adjusted block.
Bare-Act text Section 43A · Income-tax Act, 1961 · click to expand
Section 43A: Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee... the amount by which the liability is so increased or reduced... shall be added to, or, as the case may be, deducted from the actual cost of the asset.