Tax

How do you account for a foreign currency invoice in India?

Author:: Editorial team, serviceexportguide.com
Verified by:: Editorial team
Published: 28 October 2026
Last modified: 30 October 2026
Reading time: 7 min read

Short answer

AS 11 records a foreign currency invoice at the transaction-date exchange rate.¹ A weekly or monthly average is allowed unless rates fluctuate significantly.¹ The difference on settlement is an exchange gain or loss when it arises.¹ Unpaid receivables are restated at the closing rate.¹ Section 43 of the Income-tax Act, 2025 treats these differences as income or loss.²

Applies to	Governed by	Deadline	Penalty	Last verified
Businesses that follow ICAI Accounting Standards and bill in foreign currency¹	ICAI AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates¹	Restate monetary items at the closing rate at each balance sheet date¹	Not applicable	28 October 2026
Exchange gains and losses for income tax²	Income-tax Act, 2025, section 43, with ICDS under section 276(2)²	Not applicable	Not applicable	28 October 2026

An Indian designer, developer, consultant or agency that bills a client abroad keeps its books in rupees, but the invoice is in dollars, euros or pounds. Two dates matter: the day you raise the invoice and the day the money arrives. The rupee value is almost never the same on both days. Accounting standards tell you how to record each step, and the tax law tells you what happens to the difference.

How your books should look depends on your entity and turnover, so confirm the treatment with a chartered accountant (CA).

What is foreign currency invoice accounting under AS 11?

Foreign currency invoice accounting under AS 11 means recording each foreign currency invoice in rupees at the exchange rate on the date of the transaction, and then recording the exchange difference when the client pays.¹ AS 11 says a foreign currency transaction should be recorded, on initial recognition, by applying the exchange rate at that date to the foreign currency amount.¹ For a service invoice, that is normally the invoice date.

Average rate: an average rate for a week or a month may be used for all transactions in that period, but not if rates fluctuate significantly.¹
Consistency: whichever you choose, use the same source consistently, such as your bank's published rate or a reference rate.

The rest of this page follows one invoice from issue to payment.

Who does AS 11 foreign currency accounting apply to?

AS 11 foreign currency accounting applies to businesses that follow the Accounting Standards (AS) issued by the Institute of Chartered Accountants of India (ICAI), which includes most sole proprietors, partnership firms and small companies.¹ Companies that report under Indian Accounting Standards (Ind AS) follow the Ind AS standard on foreign exchange instead, which this page does not cover.

Entity type	AS 11 applicable	Why	Best for
Sole proprietor (freelancer, consultant)	Usually yes	Follows ICAI Accounting Standards	Freelancers billing in USD, EUR or GBP
Partnership firm	Usually yes	Follows ICAI Accounting Standards	Agencies and studios
Small company	Usually yes	Follows ICAI Accounting Standards	Small IT and SaaS companies
Company reporting under Ind AS	No	Follows the Ind AS standard on foreign exchange	Larger companies; see the Ind AS standard

Your CA can confirm which framework your entity follows.¹

How do you account for a foreign currency invoice step by step?

You account for a foreign currency invoice by booking the receivable at the invoice-date rate, booking the rupees actually received, and posting the difference as an exchange gain or loss.¹ AS 11 calls this an exchange difference on settlement of a monetary item and requires it to be recognised as income or as expense in the period in which it arises.¹

Invoice raised: debit the client (receivable) and credit export sales at the rate on the invoice date, or the period average.¹
Money received: debit the bank with the actual rupees credited and credit the client.¹
Difference: post the balancing figure as an exchange gain (income) or exchange loss (expense).¹
Fees: record bank charges, intermediary bank deductions and platform fees as a separate expense, so the gain or loss reflects only the rate movement.
Year end: restate any receivable still unpaid at the closing rate.¹

What rates and records apply to foreign currency invoices?

The rate on the invoice date applies when you book the invoice, the actual rupees credited apply on settlement, and the closing rate applies to unpaid receivables at year end.¹

Point in time	Rate used	Rule	Best for
Invoice raised	Rate on invoice date, or period average	AS 11¹	Booking export sales
Money received	Actual rupees credited	AS 11¹	Clearing the receivable
Balance sheet date	Closing rate for monetary items	AS 11¹	Unpaid invoices at 31 March
Advance received before invoice	Rate on the date of the transaction	AS 11, non-monetary items at historical cost¹	Advances from clients
GST valuation	Rate as per generally accepted accounting principles for the date of time of supply	CGST Rules, rule 34(2)³	GST return values

Keep enough records to show how every rupee figure was reached:

Invoice: the invoice in foreign currency, with the rupee value and rate noted in your books.
Rate source: the bank rate page, reference rate, or your monthly average workings.
Bank advice: the bank credit advice or Foreign Inward Remittance Advice (FIRA) showing the foreign amount, the rate applied and the rupees credited.
Year-end schedule: unpaid foreign invoices with the closing rate used.
Fees: any fee deductions shown separately.

Multi-currency accounting software can store the rate on each invoice and post exchange differences automatically, which keeps these records consistent.

What happens to invoices that are still unpaid at year end?

Invoices still unpaid at year end are restated at the closing rate. AS 11 treats receivables as monetary items, defined as money held and assets and liabilities to be received or paid in fixed or determinable amounts of money, and requires monetary items to be reported at the closing rate at each balance sheet date.¹ The difference between the booked value and the closing-rate value goes to profit and loss for that year.¹

For example, a marketing agency with a €5,000 invoice raised in February and still unpaid on 31 March restates that receivable at the 31 March rate. When the client pays in May, the new year's books record the difference between the 31 March value and the rupees received.¹

Advances received before you invoice, and other non-monetary items carried at historical cost, stay at the rate on the date of the transaction.¹

How is the exchange gain or loss on a foreign currency invoice calculated?

The exchange gain or loss on a foreign currency invoice is the rupees credited minus the rupee value booked on the invoice date.¹ For example, a Pune video editor invoices a US client $2,000 on 10 January, when the rate used is ₹85.00, so the receivable is ₹1,70,000. The client pays on 20 February and the bank credits ₹1,71,600 after conversion.¹

Step	Figure	Working	Best for
Receivable booked	₹1,70,000	$2,000 × ₹85.00	Invoice-date entry
Rupees credited	₹1,71,600	Bank credit advice	Settlement entry
Exchange gain	₹1,600	₹1,71,600 − ₹1,70,000	Income in the period
Alternative: rupees credited	₹1,68,800	Bank credit advice	Settlement entry
Alternative: exchange loss	₹1,200	₹1,70,000 − ₹1,68,800	Expense in the period

The rates here are illustrative.¹

How are exchange gains and losses treated for income tax?

Exchange gains are taxable and losses are allowable as business items. Section 43 of the Income-tax Act, 2025 treats any gain or loss from a change in foreign exchange rates on foreign currency transactions as income or loss, and applies to monetary and non-monetary items.² The amount is computed as per the income computation and disclosure standards (ICDS) notified under section 276(2).² See forex gain or loss on exports and tax for how this plays out across years.

The separate rule on converting foreign income into rupees for tax, rule 206 of the Income-tax Rules, 2026, does not apply where the income is received in or brought into India before the specified date.⁴ See which exchange rate to use for income tax.

Does GST use the same exchange rate as the books?

GST uses its own rule for the invoice value, which often gives a similar answer. Rule 34(2) of the CGST Rules says the rate of exchange for valuing taxable services is the rate determined as per generally accepted accounting principles for the date of time of supply.³ Most exports of services are zero-rated under a Letter of Undertaking (LUT), so no tax is charged, but the rupee value still appears in your GST return.³ See the exchange rate for GST on export invoices.

What are the common mistakes in accounting for foreign currency invoices?

The common mistakes in accounting for foreign currency invoices mix fees with exchange differences or skip the year-end restatement.¹

Netting fees into the exchange loss: bank charges, intermediary bank deductions and platform fees are not exchange differences.
Using an average rate in volatile periods: AS 11 does not allow the average rate if rates fluctuate significantly.¹
Skipping the 31 March restatement: monetary items are reported at the closing rate at each balance sheet date.¹
Restating advances: non-monetary items carried at historical cost stay at the rate on the transaction date.¹
Switching rate sources: changing between bank and reference rates makes the books hard to explain.

For a quick conversion while drafting an invoice, use the currency converter.

How did we verify this?

We checked this page against the sources below on 30 October 2026. Read our methodology or report an error.

Frequently asked questions

Which exchange rate do I use when I record a USD invoice?+

Under AS 11, you use the exchange rate on the date of the transaction, which for a service invoice is normally the invoice date. A weekly or monthly average rate may be used for practical reasons unless rates fluctuate significantly. Use the same rate source consistently, such as your bank's published rate or a reference rate.¹

Is the difference between the invoice amount and the money received a gain or a loss?+

Either, depending on the rate. If the rupees credited are more than the rupee value booked on the invoice date, the difference is an exchange gain; if less, an exchange loss. AS 11 recognises the exchange difference as income or as expense in the period in which it arises.¹

What happens to unpaid foreign invoices at 31 March?+

Receivables are monetary items, so AS 11 requires unpaid foreign invoices to be reported at the closing rate on the balance sheet date, such as 31 March. The difference between the booked value and the closing-rate value is recognised as a gain or loss in that year's profit and loss.¹

Are exchange gains on export invoices taxable in India?+

Yes. Section 43 of the Income-tax Act, 2025 treats gains or losses from changes in foreign exchange rates on foreign currency transactions as income or loss. The amount is computed as per the income computation and disclosure standards notified under section 276(2), and applies to monetary and non-monetary items.²

Do bank charges deducted from a remittance count as an exchange loss?+

No. Bank charges, intermediary bank deductions and platform fees are a separate expense. Record the gross receivable on the invoice, the fee as a bank charge, and only the rate difference as an exchange gain or loss, so the exchange figure reflects the rate movement alone and nothing else.

Does a company reporting under Ind AS follow AS 11 for foreign invoices?+

No. Companies that report under Indian Accounting Standards (Ind AS) follow the Ind AS standard on foreign exchange instead of AS 11, and this guide does not cover that standard. AS 11 applies to businesses that follow the Accounting Standards issued by ICAI, which includes most sole proprietors and partnership firms.¹

Does rule 206 of the Income-tax Rules, 2026 change the rate for exporters paid during the year?+

Rule 206 sets how foreign income is converted into rupees for tax, but it does not apply where the income is received in or brought into India before the specified date. For most exporters paid during the year, the rupees credited by the bank are the starting point for the income figure.⁴

This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.

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