Taxation and Compliance Challenges Arising from Exchange Rate Fluctuations in Indian Import-Export Businesses
Rohit C Hegde, Dr. Shivaprasad G.
The fluctuating exchange rates create multiple layers of taxes and regulations for Indian exporters and importers. Fluctuations between the INR and USD, EUR, and GBP lead to cascading impacts on GST, Customs, FEMA, Income Tax, and Ind AS 21. The research covers 2017-2024, during which time periods include the COVID-19 outbreak, Russia-Ukraine war, and the US Federal Reserve’s monetary tightening cycle. Five different compliance areas have been studied: assessment of value in computing the customs duty, GST considerations on foreign currency transactions, income tax provisions on foreign exchange gains/losses, FEMA considerations on remittance and hedging, and Ind AS 21 considerations on tax-accounting differences. The study concludes that SMEs face significant compliance costs, hedging contracts add further complications in terms of taxes, and regulatory inconsistencies between CBIC, CBDT, and RBI create litigation risks. Five recommended policies have been made.