Thin capitalisation is on the way to India
September 08, 2009
India’s proposed new direct taxes code has provisions in the fine print that propose the introduction of thin-capitalisation rules
As is the case with most jurisdictions, a typical thin-capitalisation regulation places a cap on the gearing ratio in the capital structure of a company and any debt more than that is treated as equity whereby the corresponding interest expense is not allowed as a tax deductible expense. Though the capital gearing ratio may be differently prescribed for different sets of industries, stage of project cycle, type of investment and so on, a range of 2:1 to 3:1 is often observed.
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