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.