@gohawksseattle , what I meant is ( and this generally in concert with US-India Tax treaty Article 11 and IRS ), if you invest US$1000 ( Rs/- 9000 ) in a FD scheme for three years and it pays interest ( credits your account) Rs/- 1500 ( US$17 ) in the first year ---- then for for US purposes, you recognize interest income of US$17 for that tax year. India may also tax you on the interest ( say Rs/-150) which you can claim as foreign taxes paid and take credit ( use the safeharbor amount of US$300 per filer or if more than that amount decide whether to limit your tax recognition to safe harbor amount or file a form 1666 when the credit limitations comes into play ).
When your term of the FD is up and get your principle back then and only then you may have a currency loss to deal with. If this was a business ( forward contracts or other contracts ) then you could claim loss. Even Casualty loss ( if you itemize ) is not possible because you should have known the currency risks in these circumstances. If however something unexpected happens and the currency suffers major , major loss ( like default for example ) then yes you should be able to claim this as an act of God / unforeseen and therefore casualty loss (with the floor -- 2%?) be allowed.
I don't know if this is what you expected but ....
Is there more I can do for you ?
Namaste ji
pk
