PG Ltd., an Indian Company, has borrowed ₹ 90 crores on 01-04-2025 from M/s. Capital Inc, a company incorporated in London, at an interest rate of…

(b) 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 (AE) and such interest exceeds ₹ 1 crore, 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 a lender which is not associated but an associated enterprise either provides an implicit or explicit guarantee to such lender or deposits a corresponding and matching amount of funds with the 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 M/s CD Inc holds 40% of voting power i.e., more than 26% of voting power in both PG Ltd and M/s AB Inc, PG Ltd. and M/s AB Inc are deemed to be associated enterprises. Since loan of ₹ 90 crores taken by PG Ltd., an Indian company from M/s Capital Inc, is guaranteed by M/s AB Inc, an associated enterprise of PG Ltd., such debt shall be deemed to have been issued by an associated enterprise and interest payable to M/s Capital Inc shall be considered for the purpose of limitation of interest deduction u/s 94B. Computation of interest to be allowed as per section 94B in the computation of income under the head profits and gains of business or profession of PG Ltd. Particulars (in crores) Net profit 11.00 Add: Interest already debited (₹ 90 crores x 10%) 9.00 Depreciation 5.00 Income-tax 4.00 EBITDA 29.00 Interest paid or payable by PG Ltd. 9.00 Lower of the following would be disallowed Total interest paid or payable in excess of 30% of EBITDA (₹ 9,00,00,000 - ₹ 8,70,00,000) = ₹ 30 lakhs 0.30 Interest paid or payable to non-resident AE 9.00 Interest to be disallowed as deduction 0.30 Interest allowable as deduction under the head "Profits and gains from business or profession (₹ 9,00,00,000 - ₹ 30,00,000) 8.70 Disallowed interest of ₹ 30 lakhs can be carried forward to the subsequent assessment year and it would be allowed as deduction against profits and gains, to the extent of allowable interest expenditure u/s 94B.