Clause 34 - Deductions for permitted finance charges - Direct Taxes Code Bill, 2009

Deductions for permitted finance charges 34. (1) The amount of permitted finance charges referred to in clause (b) of sub-section (1) of section 32 shall be:- (a) the amount of interest paid on any capital borrowed or debt incurred; (b) the amount of interest paid to trade creditors; (c) the amount of interest paid to any participant to the extent it is in accordance with the agreement of the association and relates to the period falling after the date of the agreement; (d) the amount of any charge or fee paid in respect of any credit facility which has not been utilized; (e) the amount of any incidental financial charges; (f) the proportionate amount of discount or premium payable on any bond or debenture issued by the person, calculated in the manner as may be prescribed. (2) The amount of permitted finance charges referred to in sub-section (1) shall not include- (a) any amount paid in respect of capital borrowed or debt incurred for acquisition of a capital asset (whether capitalized in the books of account or not) for any period - (i) in the case of a new business, prior to the date of commencement of such business; and (ii) in any other case, prior to the date on which such asset was first put to use; and (b) any amount of incidental financial charges for issue of debentures, bonds or share capital. (3) The amount of interest on any capital borrowed or debt incurred, which is payable to any permitted financial institution, shall be allowed as a deduction, regardless of anything contained in sub-section (1), in the financial year in which the amount is actually paid or in the financial year in which the liability has accrued, whichever is later. (4) Any interest referred to in sub-section (3) which has been converted into a loan or borrowing shall not be deemed to have been actually paid for the purposes of that sub-section. (5) For the purposes of this section, 'capital borrowed' shall include recurring subscriptions received periodically from shareholders, or subscribers, in Mutual Benefit Societies, which fulfils such conditions as may be prescribed.