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Amendment of Section 94B towards Relaxation of Banking Cos. from Provisions of Thin Capitalisation from Assessment Year 2021-22

Section 94B was inserted vide Finance Act 2017. It provides restriction on deduction of interest payment made by the Indian company or a Permanent Establishment of a foreign company in India to its Associated Enterprise abroad. If interest paid or payable to the overseas associated enterprises exceeds Rs. 1 crore, the deduction for such interest shall be disallowed to the extent of lower of following:

  1. Total interest paid or payable in excess of 30% of earnings (of the borrower) before interest, taxes, depreciation and amortisation in the previous year; or

  2. Interest paid or payable to the associated enterprises for that previous year.

The Finance Bill 2020 proposed that the provisions of this section shall not apply to interest paid in respect of a debt taken from a lender which is a PE of a non-resident, being a person engaged in the business of banking, in India.

Hence, interest paid or payable to Permanent Establishment of a non-resident bank is excluded for the purpose of disallowance of interest under section 94B.
Amendment of Section 9A, Section 72AA, Section 115UA, Section 119A related to Taxation in Finance Bill 2020 Tax Amendments in Finance Bill 2020 Amendment of Section 90 and 90A on Agreement with Foreign Countries can be entered to Curb Practices like ‘Treaty Shopping’ from Assessment Year 2021-22
Income Tax Slab for Financial Year 2020-21 (AY : 2021-22)

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