Tax exemptions amount limit on the interest paid by a PVT. LTD. Company

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This discussion clarifies the tax deductibility of interest paid by a private limited company on unsecured loans, specifically those from a director. Generally, interest paid on capital borrowed for business purposes is tax-deductible without a limit. However, restrictions apply if interest is paid to non-resident associated enterprises, limited to 30% of EBITDA, with excess carried forward. Interest on loans for capital assets has specific rules regarding deductibility.

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03 July 2023 Greetings,

I wish to know what is the limit of amount a private limited company can take exemption for the interest paid on the unsecured loan taken (Please note that this loan was from the Director to the Company)

Regards

RAJA P M

RAJA P M (Expert)

03 July 2023 if director ask Intetest then it will payable, no exemption.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

20 August 2023 Any interest paid by a taxpayer on capital borrowed for the purposes of the taxpayer’s business or profession is tax-deductible without any limit. However, if such interest is paid to certain related persons (non-resident associated enterprise), then, the interest expense will be restricted to 30% of earnings before interest, taxes, depreciation, and amortisation (EBITDA). Excess interest expenditure disallowed in that year can be carried forward for eight years and would be available for set-off. If the capital is borrowed for acquiring a capital asset, then interest liability pertaining to the period until the time the asset is used cannot be allowed as a tax-deductible expense and will have to be added to the cost of such asset.

There are some specific guidelines for interest deduction being prescribed in ICDS.

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