Foreign currency transactions and exchange differences
How to record export and import bills in foreign currency, and how to book the gain or loss when the rate changes.
Key facts
- Record a foreign currency bill in rupees at the exchange rate on the date of the transaction (AS 11 / Ind AS 21).
- When the money is actually received or paid at a different rate, the difference is an exchange gain or loss in the Profit & Loss account.
- At year end, convert open debtors, creditors, loans and bank balances in foreign currency at the closing rate. The difference again goes to P&L (unrealised gain or loss).
- Fixed assets, stock and advances already paid stay at the old (historical) rate. They are not restated.
- For GST, the taxable value of an export invoice is converted at the RBI reference rate on the date of supply (Rule 34). Imports use the customs exchange rate on the bill of entry.
Example: export sale
You export goods worth USD 10,000 on 10 January when USD 1 = ₹83. The customer pays on 20 February when USD 1 = ₹84.
| Date | Entry | Debit ₹ | Credit ₹ |
|---|---|---|---|
| 10 Jan | Customer A/c Dr to Export Sales A/c | 8,30,000 | 8,30,000 |
| 20 Feb | Bank A/c Dr | 8,40,000 | |
| To Customer A/c | 8,30,000 | ||
| To Exchange Gain A/c | 10,000 |
If the rupee had strengthened to ₹82, you would receive ₹8,20,000 and book a ₹10,000 exchange loss (debit).
Example: import purchase open at year end
Import bill of USD 5,000 booked at ₹82 = ₹4,10,000. On 31 March the rate is ₹83.50, and the bill is still unpaid. Restate the creditor to ₹4,17,500:
| Entry | Debit ₹ | Credit ₹ |
|---|---|---|
| Exchange Loss A/c Dr | 7,500 | |
| To Supplier A/c | 7,500 |
Where exchange differences show
- Exchange gain: Other income in the P&L.
- Exchange loss: Other expenses (or finance cost if it relates to a borrowing, to the extent it is an adjustment to interest).
- For income tax, realised and year-end restatement differences on revenue items are taxable or deductible in the same year when you follow AS 11 / ICDS VI.
Common questions
Which rate should I use, bank rate or RBI rate?
For the books, use a rate that is close to the actual rate on the date, such as the RBI reference rate or your bank's TT buying/selling rate, and apply it consistently. For GST on exports, use the RBI reference rate on the date of supply.
Do I charge GST on an exchange gain?
No. An exchange gain on settling an export or import bill is not a separate supply. It is not added to the GST value of the original invoice.
What if I get an advance in foreign currency?
Record the advance at the rate on the day it is received. When the goods are shipped, the sale is recorded at that same advance rate for the advance portion, so no exchange difference arises on that part.
Sources
- Accounting Standards (AS 2 Inventories, AS 7 Construction Contracts, AS 11 Foreign Exchange) and Ind AS 21 / 115
- Central Goods and Services Tax Rules, 2017