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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Managerial Decisions

Under the Income-tax Act, 2025, as reproduced in the official text, interest paid on capital borrowed for business is deductible, but interest on capital borrowed for acquiring an asset is excluded for which period?

The excluded period runs from the date the capital was borrowed for acquiring the asset till the date the asset is first put to use. Interest after that date is deductible. This matters for debt-funded capex planning, as pre-use interest is not deducted.

  1. AFrom the date of borrowing till the date the asset is first put to useCorrect
  2. BFrom the date the asset is first put to use till the date of repayment
  3. COnly the first twelve months after borrowing
  4. DThe entire loan period, whether or not the asset is in use

Explanation

Section 32(b)(i) says interest on capital borrowed for acquiring an asset, whether capitalised in the books or not, is excluded for the period from the date of borrowing till the asset is first put to use. Interest after the asset is put to use remains deductible, so the second option reverses the rule.

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