XYZ Ltd. provides you the Profit and loss A/c for the Financial Year 2022-23 and Financial Year 2023-24: ₹ in lakhs Particulars For the F.Y. 2022-23…

If an Indian company, being the borrower, incurs any expenditure by way of interest in respect of any debt issued by its non-resident associated enterprise and such interest exceeds 1crore, then, the interest paid or payable by such Indian company in excess of 30% of its earnings before interest, taxes, depreciation and amortization (EBITDA) or interest paid or payable to associated enterprise, whichever is lower, shall not be allowed as deduction as per section 94B. Further, where the debt is issued by lender which is not associated enterprise but an associated enterprise provides an implicit or explicit guarantee to such lender, such debt shall be deemed to have been issued by an associated enterprise and limitation of interest deduction would be applicable. In the present case, since SAM Ltd., a Country Y company, holds 36% share in XYZ Ltd., an Indian company, i.e., more than 26% of voting power, SAM Ltd. and XYZ Ltd. are deemed to be associated enterprise. Since loan of 120crores taken by XYZ Ltd., an Indian company from L & T Inc., Country R company, is guaranteed by SAM Ltd., an associated enterprise, such debt shall be deemed to have been issued by an associated enterprise and interest paid or payable to L & T Inc. shall be considered for the purpose of limitation of interest deduction under section 94B. Computation of income under the head profits and gains of business or profession of XYZ Ltd Particulars Amount (in lakhs) Interest allowable u/s 94B for A.Y. 2023-24 Gross Profit 2,030 Less: Employee benefits expenses 390 EBITDA 1,640 Interest paid or payable to L & T Inc. 562 Lower of the following would be disallowed - Total interest paid or payable in excess of 30% of EBITDA [562lakhs -492 lakhs (i.e., 30% of 1,640 lakhs)] 70 lakhs - Interest paid or payable to L & T Inc. 562 lakhs Interest to be disallowed as deduction for A.Y. 2023-24, which can be carried forward up to 8 assessment years 70 Interest allowable u/s 94B for A.Y. 2024-25 Gross Profit 1,780 Less: Employee benefits expenses 402 EBITDA 1,378 Interest paid or payable to L & T Inc. 389 Lower of the following would be disallowed - Total interest paid or payable in excess of 30% of EBITDA [389lakhs -413.40 lakhs (30% of 1,378 lakhs)] Nil - Interest paid or payable to L & T Inc. 389 lakhs Interest to be disallowed as deduction for A.Y. 2024-25 Nil Brought forward interest of A.Y. 2023-24 allowed as deduction against profits and gains of A.Y. 2024-25 to the extent of maximum allowable interest expenditure u/s 94B i.e.,24.4 lakhs [₹ 413.40 lakhs -389 lakhs] 413.40 Total interest allowed in A.Y. 2024-25 [389 lakhs + 24.40 lakhs) 413.40 Balance of amount of interest relating to A.Y. 2023-24 is eligible for carried forward i.e.,45.60 lakhs (70lakhs minus - 24.40 lakhs) to 7 more subsequent assessment years. Income under the head profit and gains of business or profession of XYZ Ltd. for A.Y. 2024-25 EBITDA 1,378.00 Less: Interest (maximum interest allowable as deduction u/s 94B) 413.40 Depreciation (As per the Income-tax Act, 1961) 254.00 710.60