Income-tax Act, 2025

Limitation on interest deduction in certain cases - Section 177

Limitation on interest deduction in certain cases.

177. (1) Irrespective of anything contrary in this Act, any expenditure by way of interest or similar payment in respect of excess interest, as specified in sub-section (4), shall not be deductible in computation of income chargeable under the head "Profits and gains of business or profession", if,

(a) it is paid or payable by an Indian company or a permanent establishment of a foreign company in India, in respect of any debt issued by an associated enterprise which is a non-resident; and

(b) the sum of such expenditure in a tax year exceeds one crore rupees.

(2) Where a lender, not being an associated enterprise, has issued a debt referred to in sub-section (1), such debt shall be deemed to have been issued by an associated enterprise if an associated enterprise has

(a) provided an implicit or explicit guarantee to the lender in respect of such debt; or

(b) deposited a corresponding and matching funds with such lender.

(3) The provisions of this section shall not apply to

(a) interest paid in respect of a debt issued by a lender which is a permanent establishment in India of a non-resident engaged in the business of banking;

(b) an Indian company or a permanent establishment of a foreign company which is engaged in the business of banking or insurance or a Finance Company located in any International Financial Services Centre, or such class of non-banking financial companies as may be notified by the Central Government in this behalf.

(4) For the purposes of sub-section (1), the expression "excess interest" means the total interest paid or payable in excess of 30% of earnings before interest, taxes, depreciation and amortisation of the borrower in the tax year or the interest paid or payable to associated enterprises for that tax year, whichever is less.

(5) Interest expenditure not wholly deducted against income unde .... To read the full section download the app from Google Play store