Adjustments in GSTR-1/GSTR-3B for Forex Gains or Losses

May 23, 2025 8 min read

Under GST, foreign currency transactions require careful handling to ensure proper tax compliance. A critical aspect often misunderstood is how exchange rate fluctuations affect GST reporting. This guide explains the regulatory framework, accounting treatment, and practical workflow for handling forex differences in GST returns.

1. Regulatory Framework

Foreign Currency Transaction
Determine Time of Supply
Apply Rule 34 Conversion Rate
Lock GST Value (No Subsequent Changes)
Figure 1: GST Valuation Process for Forex Transactions

1.1 Valuation at Time of Supply

Rule 34, CGST Rules, 2017 mandates that for taxable goods, the exchange rate notified by the Customs Board applies, while for services, the Generally Accepted Accounting Principles (GAAP)-determined rate on the time-of-supply date must be used to convert foreign currency to INR when issuing the tax invoice.

Key characteristics of this rule:

  • The GST base becomes fixed at the time of supply
  • No provision exists to re-value supplies later based on actual receipt rates
  • The same rate applies for both invoice generation and GST return filing

1.2 Forex Differences Are Not "Supply"

Foreign exchange gain or loss is explicitly not considered a supply under GST law and therefore:

  • Attracts no additional tax liability
  • Does not require reporting in GST returns
  • Is treated strictly as an accounting reconciling item

These variances only appear in audit reconciliations (Form 9C) rather than monthly or quarterly returns.

2. Accounting vs GST Perspective

Aspect Accounting Treatment GST Treatment
Recognition Point Transaction date and settlement date Time of supply only
Subsequent Changes Marked to market until settlement Value crystallized at supply
Reporting Profit & Loss Statement Not reported in returns

2.1 Accounting Recognition

Under accounting standards (Ind AS 21 or AS 11), entities must:

  • Record initial transaction at spot rate
  • Recognize forex variances on monetary items in P&L
  • Adjust balances at each reporting date until settlement

2.2 GST Treatment

The GST framework differs significantly:

  • Only the time-of-supply conversion matters
  • Subsequent currency movements are irrelevant for tax purposes
  • Exchange variances never form part of taxable value

3. GSTR-1 & GSTR-3B Reporting

Generate Invoice
(Convert at Rule 34 rate)
Report in GSTR-1
(Tables 3/4 for B2B/Export)
Pay Tax via GSTR-3B
(Based on supply date value)
Reconcile in Form 9C
(Forex differences noted)
Figure 2: GST Reporting Workflow for Forex Transactions

3.1 Outward Supplies in GSTR-1

Key reporting requirements:

  • Table 3: For B2B invoices (INR value at supply date rate)
  • Table 4: For export invoices (INR value at supply date rate)
  • Table 9: Only for genuine credit/debit notes (not forex differences)

3.2 GSTR-3B Summary Reporting

The monthly return requires:

  • Total taxable value at locked-in rates
  • Tax calculation based on original values
  • No separate line for forex adjustments

4. Practical Implementation

Maintain Forex Register
(Document all conversions)
Monthly Books vs Returns Check
(Verify GST values match)
Annual Form 9C Reconciliation
(Classify forex differences)
Audit Working Papers
(Demonstrate compliance)
Figure 3: Compliance Process for Forex Transactions

4.1 Essential Documentation

Maintain these records to demonstrate compliance:

Forex Conversion Register

Supply Date Invoice No. FC Amount Rate Used Rate Source INR Value
05-Mar-2025 EXP-001 USD 10,000 82.50 RBI Ref Rate 825,000
12-Mar-2025 EXP-002 EUR 8,500 89.20 Customs Notif. 758,200

4.2 Reconciliations

Perform these critical reconciliations:

  1. Invoice-level reconciliation: Match each export/supply between books and GSTR-1
  2. Monthly summary reconciliation: Verify GSTR-3B totals against accounting records (excluding forex differences)
  3. Annual Form 9C reconciliation: Clearly identify forex variances as non-GST items

5. Illustrative Example

Detail Data
Export Invoice No. EXP-001
Date of Supply 05-Mar-2025
Foreign Amount USD 10,000
RBI Reference Rate (05-Mar-2025) INR 82.50/USD
INR Invoice Value (10,000×82.50) INR 825,000
IGST @ 18% INR 148,500
Amount Received (30-Apr-2025) USD 10,200 (₹ 84.00/USD)
Accounting Forex Gain (200×84.00) INR 16,800
GST Return Treatment No change—Invoice value remains ₹ 825,000; forex gain not reported in GSTR-1/GSTR-3B.

6. Key Takeaways

Valuation Principle

The GST base locks at the time of supply using Rule 34 rates—no subsequent adjustments for forex variances.

Documentation

Maintain a detailed Forex Conversion Register and reconciliation working papers.

Return Filing

Forex differences never appear in GSTR-1 or GSTR-3B—only in annual audit reconciliations.

Compliance

Clearly separate GST values (fixed at supply) from accounting forex variances in all records.

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