Introduction

The G-20/ OECD BEPS Action Item 4 deals with the issue of base erosion and profit shifting by way of excessive interest deductions by multinational enterprises. As a counter-measure, the BEPS Final Report on Action Item 4 recommends limitation on interest deduction. The recently announced Indian Finance Bill, 2017 has proposed introduction of interest deduction restriction in case of transactions between associated enterprises [Sec. 94B in the Indian Income Tax Act, 1961 (“the Act”)]. But, those provisions are saddled with serious anomalies, which are likely to blunt the anti-avoidance provisions’ efficacy and flare up significant tax litigation.