Real estate and infrastructure companies, already struggling with thin profit margins, could see a substantial fall in profits and a significant rise in tax liability next year due to the `thin capitalisation’ concept unveiled in the Union Budget for 2017-18.
The new rule will not allow companies to claim tax deduction for interest paid on foreign debt above 30% of their EBITDA (earnings before interest, tax, depreciation and amortisation).
Experts say the most hit would be real estate and infrastructure companies that have large chunk of international debt at project level or in their special purpose vehicles (SPVs).
The government is expected to categorise investments through non-convertible debentures (NCDs) and the dividend paid on that also as debt.
Read more: ETRealty
