TaxTMI 
TaxTMI 
Clarification regarding deduction of interest under section 43B in view of clarificatory amendments to section 43B through the Finance Act, 2006
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....ion 43B in view of clarificatory amendments to section 43B through the Finance Act, 2006. Section 43B of the Income-tax Act, 1961 was amended by the Finance Act, 2006 inserting therein two clarificatory Explanations, namely; Explanation 3C and Explanation 3D. Both the Explanations clarify that any sum payable by the assessee as interest on any loan or borrowing or advance shall be allowed as deduction if such interest has been actually paid and any interest which has been converted into a loan or borrowing or advance but has not been actually paid shall not be allowed as deduction in the computation of income. The clarificatory explanations only reiterate the rationale th....
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....essee : M/s. ABC Loan taken from Bank on 31-03-2003 : Rs.2,37,81,000/- Interest unpaid upto 31-03-2005 : Rs.35,90,000/- In the restructuring arrangement entered into in this case, the unpaid interest of the above amount of Rs.35,90,000 has been converted into a Funded Interest Term Loan (FITL) which has been shown separately from the original loan and no interest is chargeable on FITL. This converted interest (i.e. FITL) is to be paid in eleven instalments from 01-04-2010. Each instalment worked out to an amount of Rs.3,26,364/-. In this case, deduction to the extent of the amount actually paid against the payment of instalment of FITL of Rs.3,26,364/- under secti....
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....ing Capital Term Loan will also be allowable only on actual payment in the relevant Assessment Year. III.Name of the assessee : M/s. PQR Loan taken by the assessee from a Term Lending Institution in May, 2002 : Rs. 14.95 crores Interest paid up to April, 2004 but default in payment of interest started in the quarter April June, 2004. In this case, the original pri....
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.... continue to retain their separate identities. However, they did not rule out a restructuring arrangement providing for merger of interest with the principal. In the light of the possibility of merger of interest with the principal, the repayment instalment will comprise of payment of interest as well as repayment of part of the principal. In such situations, the amount of deduction on account of actual payment of interest will have to be calculated on a proportionate basis. For example, out of the aforesaid amount of merged interest and the principal of Rs.133crores, Rs.20 crores is repaid in the first year and the amount of interest comprised therein is not distinguishable. The amount of deduction in the computation of income on account o....
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....; Interest on the principal of Rs.100 Cr. . Y (c) Repayment of interest of Rs. 33 Cr. Z (converted into Funded Interest Term Loan) In the above arrangement, the amount of Y & Z will be admissible as deduction under section 43B if these amounts of interest are actually paid. The amount of X, representing repayment of the principal, will not qualify for deduction in the computation of income. A restructuring arrangement may even provide for payment of interest first, until it is fully paid. In such cases, the whole amount of interest, actually paid, will be allowed as deduction in terms of section 43B. 4. The above illustrations would s....