Question 1

How are forex gains taxed for freelancers?

Accepted Answer

Forex gains are taxed as part of business income at your applicable income tax slab rate. For example, if you invoiced at Rs. 82/USD and received payment at Rs. 85/USD, the Rs. 3 per USD gain is added to your business income and taxed accordingly.

Question 2

Can I claim forex losses as a business expense?

Accepted Answer

Yes, forex losses are deductible as business expenses. If the rupee strengthened between invoice date and payment date, the loss reduces your taxable business income. Maintain proper documentation including invoices and bank statements as proof.

Question 3

Which exchange rate should I use for invoicing?

Accepted Answer

Use the RBI reference rate or your bank's applicable rate on the invoice date for accounting purposes. When payment is received, use the actual rate credited to your account. The difference between these rates results in forex gain or loss.

Question 4

How can I minimize forex fluctuation risk?

Accepted Answer

Strategies include: invoicing in INR (shifts risk to client), using forward contracts to lock rates, receiving payments quickly (within 7-10 days), and choosing payment gateways with better forex rates like Wise or Payoneer over PayPal.

Question 5

Do I need to track forex gains for GST purposes?

Accepted Answer

Forex gains or losses do not affect GST calculations. GST is charged on the invoice value at the prevailing exchange rate on the date of invoice. Any subsequent forex fluctuation is purely an income tax matter and does not require GST adjustment.

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