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Start ups, NBFCs seek exemption from debt norms

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As the Finance Bill came up for debate in the Lok Sabha on Tuesday, startups and some nonbanking financial companies (NBFCs) demanded an exemption fromaprovision of the draft legislation.
According to the provision, income tax deduction is denied to those companies whose interest payment on overseas debt to associated enterprises exceeded 30 per cent of their earnings before interest, taxes, depreciation and amortisation (Ebitda).

Banks and insurance companies have already been exempted from the Budget proposal, technically calledaprovision on thin capital incorporated in the Bill following an action plan by the Organisation for Economic Cooperation and Development (OECD) on Base Erosion and Profit Shifting (BEPS).

Eric Mehta, partnertransfer pricing, Price Waterhouse, said startups should be given exemption from this proposal as they have very low Ebitda in the initial years.

Also, NBFCs should be out of this, in line with banking and insurance companies, he said.

Sanjay Agarwal, managing director, Au Financiers India Limited,aJaipurbased NBFC, said financing companies should be looked at differently, including all NBFCs, as for them getting debt is raw material for their business requirements and interest would always be substantially higher than 30 per cent of their Ebitda.

At the same time, he said, these transactions by Indian units with their nonresident associates through branches or subsidiaries or in any other capacities must be on an arm´s length basis with prevailing market conditions and positions.

Manish Sinha, founder of Skrilo, said: “India isafertile ground for startups and innovation over the long term and it is imperative that the government supports them with tax benefits.” Earlystage capital was much needed for growing businesses than meeting financial burdens, he said.

Vaibhav Dabhade, cofounder& CEO, Anchanto, anecommerce logistics and selling platform, said: “While Anchanto India is not an entity serviced through an overseas debt, we do understand the implications of this clause.

Every business chases the dream of getting profitable, which takes time— more so for startups —wherein they are trying to disrupt the current scheme of things."

The provision on thin capital denies the ITdeduction to firms whose interest payments on overseas debt to associated firms exceeds 30% of Ebitda
Business Standard New Delhi,22th March 2017

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