Section 43A of ITA, 1961 : Section 43A: Special Provisions Consequential To Changes In Rate Of Exchange Of Currency

Explanation using Example

Imagine a situation where a company in India, Tech Innovations Ltd., purchases specialized machinery from Germany for its manufacturing unit. The machinery costs 100,000 Euros, and at the time of the agreement, the exchange rate is 1 Euro = 80 INR, making the machinery's cost 8,000,000 INR.

Due to fluctuations in the foreign exchange market, by the time Tech Innovations Ltd. makes the payment, the exchange rate changes to 1 Euro = 85 INR. Now, the machinery costs them 8,500,000 INR, which is 500,000 INR more than the initial liability.

Under Section 43A of the Income-tax Act, 1961, this additional liability of 500,000 INR due to exchange rate fluctuation will be added to the actual cost of the machinery. This adjusted cost will then be used for calculating depreciation and other tax-related purposes.