Restriction on deduction of profit on debt payable to associated enterprise
The Finance Act has restricted the claim of profit on debt paid/payable to associates in order to stop shifting of profits on account of POD. Thus, the Finance Act has approved the limitation on interest deductions wherein foreign profit on debt claimed by foreign controlled resident company has been restricted to 15% of the taxable income before depreciation and amortization.
However, this limitation shall not apply where foreign profit on debt claimed is less than Rs. 10 million for a tax year.
Where in computing the taxable income for a tax year, full effect cannot be given to a deduction for foreign profit on debt, the excessive amount shall be added to the amount of foreign profit on debt for the following tax year and shall be treated to be part of that deduction, or if there is no such deduction for that tax year, be treated to be the deduction for that tax year and so on for three tax years.
Notwithstanding the provisions of section 106, where deduction of foreign profit on debt is disallowed under this section and also under section 106, the disallowed amount shall be higher of the disallowed amount under this section and section 106.