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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Business Restructuring

Sahyadri Components Ltd borrowed Rs 6,00,000 in the year to buy a new machine for its factory. Under the interest deduction provision of the Income-tax Act, 2025 (section 32(b)), which statement is correct about interest paid on this borrowing for the period from the date of borrowing until the machine is first put to use?

Interest on money borrowed to acquire an asset, for the period from borrowing until the asset is first put to use, is excluded from deductible interest under section 32(b)(i). This holds whether or not the interest is capitalised in the books of account.

  1. AIt is deductible as business interest, provided it is not capitalised in the books
  2. BIt is not included in the deductible interest, whether or not it is capitalised in the booksCorrect
  3. CIt is deductible only if the loan is taken from a scheduled bank
  4. DIt is deductible in full if the machine is put to use before the end of the tax year

Explanation

Section 32(b)(i) says interest does not include interest on capital borrowed for acquiring an asset for the period from the borrowing date to the date the asset is first put to use, whether or not capitalised in the books. So treatment in the books does not change the result. The option saying it is deductible if not capitalised ignores the words 'whether capitalised in the books of account or not'.

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