Question

for tax purposes, interest on corporate dept is:

Answer 1

Interest on corporate debt is taxable on accrual basis at slab rates.Interest will be charged according to method of accounting followed.Generally , debt are in demat form and listed, hence there is no TDS deduction.

The difference between the purchase price and sale price is treated as capital gain.The capital gain is long term if the debt is held more than 12 months otherwise the gain will be short term.

Under the new tax law ,a company can only deduct interest expense of up to 30% of its earning before interest,taxes,depreciation and amortization.

Any amount in interest expense beyond it will no longer be deductible.

The most leveraged companies would feel this the most,but all profitable companies with significant debt levels will feel it.

The new tax law has additional provision that will lower the value of the interest expense deduction further: 21% maximum tax rate. Under the old law,39% of interest expense would essentially be covered by the government. Under new law , only 21% would be covered.

These two provision- the limits on deductibility of interest expense and lower tax rate-remove much of the tax incentives to borrow