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Section - 94B - Limitation of Interest deduction in certain cases –

 

This is a new provision proposed to be inserted which seeks to provide remedy for thin capitalization and is in line with the recommendations of OECD BEPS Action plan. It provides that interest expenses claimed by an entity to its associated enterprises shall be restricted to 30% of its earnings before interest, taxes, depreciation and amortization or interest paid or payable to the associated enterprise, whichever is less. The provision will apply to an Indian company or a permanent establishment of a foreign company who is the borrower.

 

The provision also allow for carry forward of disallowed interest expense to 8 assessment years immediately succeeding the assessment year for which the disallowance was made.

 

It will not apply to a case where the interest does not exceed Rs.1Crore and also to banks and those who are carrying on insurance business

The amendment will take effect from 1St April 2018 and will accordingly apply in relation to assessment year 2018-19.


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