Tax axe on firms with foreign debt

Interest payments in excess of 30% of Ebitda to foreign associates will lose tax exemption

To address the issue of thin capitalisation, the Budget has increased the tax burden on Indian companies which have low equity but have taken high debt from foreign associates. 

The move will impact infrastructure, real estate, pharmaceuticals, information technology (IT) and IT-enabled services sector firms that had raised debt from a foreign parent or associate companies, even as equity capital remained low. 

“It is proposed to provide that the interest paid by an Indian company or permanent establishment of a foreign company, in excess of 30 per cent of earnings before interest, taxes, depreciation and amortisation (Ebitda), or interest paid to its