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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, interest on capital borrowed for business is deductible, but interest on money borrowed to acquire an asset is treated differently for a particular period. Which period is excluded from the deductible interest?

The excluded period runs from the date the capital was borrowed for acquiring the asset until the date the asset is first put to use. Interest for that period is not deductible as business interest, whether or not capitalised in the books; later interest is deductible.

  1. AFrom the date of borrowing to the date the asset is first put to useCorrect
  2. BFrom the date the asset is first put to use to the end of the tax year
  3. CFrom the date of the loan agreement to the date of the first instalment
  4. DThe entire life of the loan taken for the asset

Explanation

Section 32(b)(i) states that deductible interest does not include interest on capital borrowed for acquiring an asset for the period from the date of borrowing until the asset is first put to use. Interest after the asset is first used is deductible. The other options misstate the excluded window.

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