Compute section 43A on actual settlement
For FY 2025–26 and AY 2026–27, apply the Income-tax Act, 1961 under the transition provisions, including when the return is filed after 1 April 2026. Section 43A applies to covered assets acquired from outside India for business or profession when a post-acquisition exchange movement changes the rupee liability at payment. It covers payment of the asset cost in full or part and qualifying specific foreign-currency borrowings used to acquire it, including the statutory reference to interest where applicable. In the machinery examples the eligible difference increases or reduces actual tax cost. A year-end retranslation of an unpaid balance is not the payment trigger.
Read the applicable text: Income-tax Act, 1961, sections 32, 43, 43A and 43AA Income-tax Act, 2025, section 536 CBDT Form 3CD, clause 18 Notified AY 2026–27 ITR-6 ITR-6 corrigendum Official ITR-6 JSON schema Official ITR-6 validation rules Official utility downloads CBDT Circular 7/2026.
Build a tranche ledger rather than a year-end net figure
Tie each foreign amount to the asset invoice or specifically linked borrowing, the liability at acquisition and the settlement actually made. For a simple unhedged payable, use the acquisition rupee basis for the units settled and compare it with the rupee settlement amount. Carry unsettled units forward with their original basis for this comparison. Explanation 2 excludes any covered liability met directly or indirectly by another person or authority rather than by the assessee; document who ultimately met the payment. Separate bank charges, interest and other items rather than treating every bank debit as exchange difference.
Handle hedged amounts and double counting
Explanation 3 uses the qualifying authorised dealer contract rate for the portion available to discharge the covered liability. Reconcile the forward to the actual payment and test the remainder separately. Where the vendor is paid with specific loan proceeds, trace vendor settlement and subsequent loan repayment without duplicating an exchange movement. Section 43AA is expressly subject to section 43A; do not treat an imported-machinery cost adjustment as ordinary trade currency expense solely because of the book ledger classification.
Tie tax audit and ITR-6 to the tax block
Where applicable, Form 3CD clause 18(d)(ii) identifies adjustments for changes in exchange rates within the additions and deductions particulars. Reconcile the settled difference to the applicable asset cost or block working and preserve the acquisition, first-use and payment dates. For current-year plant additions, notified Schedule DPM has the additions buckets at items 4 and 7, for the respective 180-days-or-more and less-than-180-days periods. Use the adjusted qualifying cost in the proper computation; a supplier exchange gain is not sale consideration. The half-rate rule concerns qualifying additions acquired in the previous year and put to use for less than 180 days in that year. A later settlement does not make the machine newly acquired. For an existing asset, separately reconcile the current-year movement to the existing block rather than changing last year's filed closing WDV to conceal it.
Review the profit bridge and filing calendar
Isolate any book exchange entry affecting profit so the tax working does not take both an ordinary revenue deduction and a cost adjustment. Reconcile book depreciation and amortisation added back at Schedule BP item 11 and the depreciation under sections 32(1)(ii) and 32(1)(iia) sourced from Schedule DEP item 6 at Schedule BP item 12(i). Validate the final return using the current AY tools; the official listing shows offline utility 1.0.2 released 4 November 2026. Circular 7/2026 moved the covered non-section-92E return date from 31 October to 21 November 2026 and its specified audit-report date from 30 September to 21 October. The separate section 92E class statutory return date is 30 November 2026. Verify the company's category and any later relief before filing.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Unpaid at the close
An imported machine's USD 40,000 payable was recorded at ₹82 per USD. At year-end it is ₹85 and all units remain unpaid. The ₹1,20,000 difference in a simple closing translation does not enter the section 43A tax cost for that year.
Illustrative example 2: Two settlements in opposite directions
A USD 30,000 machinery payable arose at an acquisition basis of ₹82 per USD. Settle USD 18,000 at ₹85 and USD 12,000 at ₹80. The first increases cost by ₹54,000 and the second reduces it by ₹24,000. If in the same FY, net increase is ₹30,000.
Illustrative example 3: Partial payment plus an open balance
USD 50,000 acquisition basis is ₹83; USD 20,000 is paid at ₹86. Increase cost by ₹60,000 for the paid units. Keep USD 30,000 open; even if a ₹87 closing rate shows a further ₹1,20,000 movement on the open units, it is not a current section 43A adjustment.
Illustrative example 4: Qualifying forward on part of the payment
USD 10,000 acquisition basis is ₹82. A qualifying forward at ₹84 covers USD 6,000 of the payment and the remaining USD 4,000 settles at ₹86. In the stated circumstances the cost increase is ₹12,000 plus ₹16,000, or ₹28,000.
Illustrative example 5: Full-rate depreciation illustration
Assume machinery with tax cost ₹20 lakh before a supported ₹1 lakh increase qualifies for the full 15% DPM rate, with no other movements. Adjusted base is ₹21 lakh, depreciation ₹3.15 lakh and closing WDV ₹17.85 lakh. The adjustment increases depreciation by ₹15,000.
Illustrative example 6: Lower cost and half rate
Assume a current-year addition with tax cost ₹12 lakh before a supported ₹40,000 reduction is used for under 180 days and its normal block rate is 15%. On the simplified facts the ₹11.6 lakh base at 7.5% gives ₹87,000 depreciation, ₹3,000 below the pre-adjustment amount.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Verify overseas asset acquisition | Contract, import evidence and asset ledger |
| 2 | Confirm the liability and original rupee basis | Invoice and acquisition conversion working |
| 3 | Trace any specific borrowing | Loan agreement and acquisition use of funds |
| 4 | Match each actual settlement | Bank advice, payment date and foreign units |
| 5 | Check any qualifying hedge | Authorised dealer contract and discharge match |
| 6 | Compute signed cost changes | Tranche calculation and open balance roll-forward |
| 7 | Tie to the correct tax block | Prior WDV, movements and first-use evidence |
| 8 | Reconcile audit particulars | Form 3CD clause 18 and supporting records |
| 9 | Review DPM, DEP and Schedule BP | Final computation and book-to-tax bridge |
| 10 | Validate the filed position | AY utility output and submission evidence |
Sixteen practitioner FAQs
1. Can the company use its balance-sheet closing rate for every tranche?
No. Section 43A focuses on the eligible movement at actual payment.
2. What if the supplier is abroad but the asset was acquired domestically?
Establish where the asset was acquired from and the actual statutory facts; a foreign supplier address alone is insufficient.
3. Is the whole invoice adjusted on a partial payment?
Apply the payment test to the portion settled.
4. Does an exchange gain increase tax cost?
A qualifying reduction in liability reduces the applicable cost.
5. What if payment occurs next FY?
Apply the corresponding law for that later period; do not bring forward a payment that did not occur.
6. Does section 43A cover any foreign loan?
The borrowing branch requires foreign-currency borrowing specifically for the asset.
7. Should all bank charges be included as currency movement?
Identify the actual exchange movement and review fees separately.
8. Is the acquisition liability compared with the last year-end book balance?
Use the statutory acquisition reference; reconcile book retranslation separately.
9. How is a qualifying partial forward handled?
Use the contract rate for the eligible portion available to discharge the liability.
10. Does the book P&L classification settle the tax treatment?
No. Reconcile book entries to the statutory computation.
11. Where is the exchange adjustment identified in Form 3CD?
Clause 18(d)(ii), within asset additions and deductions particulars.
12. Is a favourable exchange movement disposal proceeds?
It is a cost reduction under the covered facts, not consideration from selling the asset.
13. Do DPM items 4 and 7 classify by the payment date alone?
No. Test the relevant asset's use and the applicable depreciation conditions.
14. Can ordinary inventory payable retranslation be included here?
This guide addresses imported business capital assets; assess trade liabilities separately.
15. What if the prior year closing WDV does not match the current opening?
Reconcile filed, processed and working figures rather than forcing equality by overwriting evidence.
16. Does GST or customs valuation replace the settlement working?
No. Preserve those source documents but apply the income-tax settlement rule independently.
Official sources
Income-tax Act, 1961, sections 32, 43, 43A and 43AA Income-tax Act, 2025, section 536 CBDT Form 3CD, clause 18 Notified AY 2026–27 ITR-6 ITR-6 corrigendum Official ITR-6 JSON schema Official ITR-6 validation rules Official utility downloads CBDT Circular 7/2026
Income Tax Department: section 43A, including Explanations 2 and 3
Income Tax Department: section 43AA
Income Tax Department: Form 3CD clause 18 reporting guidance