In part I & II of this article, we tried to analyzed and understood provision of sub-section (1) and proviso of sub-section (1) of section 94B. In this part, we try to analyze and understand remaining portion of section 94B as below,
94B. (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.
Let’s put it by simple example,
Particulars |
(Rs. In Cr) |
||
1st |
Amount of total Interest paid or payable |
(A) |
100 |
Earnings before interest, taxes, depreciation and amortization (EBITDA) |
(B) |
200 |
|
Interest paid or payable in excess of 30% of EBITDA [ A – (30% of B) ] |
(C) |
40 |
|
2nd |
Interest paid or payable to associated enterprise |
(D) |
70 |
Excess interest u/s 94B(2) [Lower of C or D] |
(E) |
40 |
94B. (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.
Sec 94B will not apply.
94B. (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.
Let’s put it by simple example,
Particulars |
(Rs In Cr.) |
||
Year 1 |
Year 2 |
||
Amount of total Interest paid or payable |
(A) |
100 |
60 |
Earnings before interest, taxes, depreciation and amortization (EBITDA) |
(B) |
200 |
240 |
Interest paid or payable in excess of 30% of EBITDA [A – (30% of B)] |
(C) |
40 |
– |
Interest paid or payable to associated enterprise |
(D) |
70 |
30 |
Excess interest u/s 94B(2) [Lower of C or D] |
(E) |
40 |
– |
Interest disallowed u/s 94B [ E ] under head PGBP |
(F) |
40 |
– |
Claimed of Brought Forward interest |
(G) |
– |
12* |
Interest not deducted under head PGBP and carried forward for next 8 assessment years |
(H) |
40 |
28 |
*[(240*30%)-60] subject to brought forward interest.
94B. (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.
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