Section 94B of Income Tax Act "Limitation on interest deduction in certain cases"
94B. (1) Notwithstanding anything contained in this Act,
where an Indian company, or a permanent establishment of a
foreign company in India, being the borrower, incurs any
expenditure by way of interest or of similar nature
exceeding one crore rupees which is deductible in computing
income chargeable under the head "Profits and gains of
business or profession" in respect of any debt issued by a
non-resident, being an associated enterprise of such
borrower, the interest shall not be deductible in
computation of income under the said head to the extent that
it arises from excess interest, as specified in sub-section
(2) :
Provided that where the debt is issued by a lender which is
not associated but an associated enterprise either provides
an implicit or explicit guarantee to such lender or deposits
a corresponding and matching amount of funds with the
lender, such debt shall be deemed to have been issued by an
associated enterprise.
Following sub-section (1A) shall be inserted after
sub-section (1) of section 94B by the Finance Act, 2020,
w.e.f. 1-4-2021 :
(1A) Nothing contained in sub-section (1) shall apply to
interest paid in respect of a debt issued by a lender which
is a permanent establishment in India of a non-resident,
being a person engaged in the business of banking.
(2) For the purposes of sub-section (1), the excess
interest shall mean an amount of total interest paid or
payable in excess of thirty per cent of earnings before
interest, taxes, depreciation and amortisation of the
borrower in the previous year or interest paid or payable to
associated enterprises for that previous year, whichever is
less.
(3) Nothing contained in sub-section (1) shall apply to an
Indian company or a permanent establishment of a foreign
company which is engaged in the business of banking or
insurance.
(4) Where for any assessment year, the interest expenditure
is not wholly deducted against income under the head
"Profits and gains of business or profession", so much of
the interest expenditure as has not been so deducted, shall
be carried forward to the following assessment year or
assessment years, and it shall be allowed as a deduction
against the profits and gains, if any, of any business or
profession carried on by it and assessable for that
assessment year to the extent of maximum allowable interest
expenditure in accordance with sub-section (2):
Provided that no interest expenditure shall be carried
forward under this sub-section for more than eight
assessment years immediately succeeding the assessment year
for which the excess interest expenditure was first
computed.
(5) For the purposes of this section, the expressions-
(i) "associated enterprise" shall have the meaning assigned
to it in sub-section (1) and sub-section (2) of section 92A;
(ii) "debt" means any loan, financial instrument, finance
lease, financial derivative, or any arrangement that gives
rise to interest, discounts or other finance charges that
are deductible in the computation of income chargeable under
the head "Profits and gains of business or profession";
(iii) "permanent establishment" includes a fixed place of
business through which the business of the enterprise is
wholly or partly carried on.
What is Avoidance of tax by certain transactions in securities? Section 94 of Income Tax Act 1961
Section 94B Limitation on interest deduction in certain cases
What are the Definitions? Section 102 of Income Tax Act 1961
What is Tax on short-term capital gains in certain cases? Section 111A of Income Tax Act 1961
What is Tax on long-term capital gains? Section 112 of Income Tax Act 1961