Case scenario on Article 30
Article 30- General Interest Deduction Limitation Rule
Scenario 1: M/s XYZ ltd. has Profit & Loss A/c details for the tax period as under:
| Particulars | Amount in AED |
| Taxable Income (Includes interest income of AED 5,00,000) | 25,00,000 |
| Exempt Income | 15,00,000 |
| Total Income | 40,00,000 |
| Cost of goods sold/services | 21,00,000 |
| Interest | 6,50,000 |
| Depreciation | 5,50,000 |
| Total Expenditure | 33,00,000 |
| Profit & Loss before tax | 7,00,000 |
| Tax | 29,250 |
| Profit after tax | 6,70,750 |
Calculation of disallowance of interest expenditure under Article 30:
General Interest deduction shall be lower of the following:
- Net Interest Expenditure
- 30 % of EBITDA excluding the exempt income
Limit 1: Calculation of net interest expenditure
Interest expenditure incurred (current tax period) – Taxable interest income
Therefore, AED 1,50,000 (6,50,000 – 5,00,000) is net interest expenditure.
Limit 2:
Calculation of EBITDA excluding exempt income
| Particulars | Amount in AED |
| Profit after tax | 6,70,750 |
| Add: Tax Amount | 29,250 |
| Add: Interest | 6,50,000 |
| Add: Depreciation | 5,50,000 |
| 19,00,000 | |
| Less: Exempt Income | 15,00,000 |
| EBITDA excluding exempt income | 4,00,000 |
Now, 30% of EBITDA excluding exempt income shall be 4,00,000*30% = AED 1,20,000.
Therefore, deductible interest expenditure for current tax period lower of the above i.e., AED 1,20,000 & Interest expenditure to be carried in subsequent tax periods shall be AED 30,000 (1,50,000 – 1,20,000).
Scenario 2: In case there is carry forward interest expenditure disallowed in previous tax periods amounting to AED 20,000, disallowance of interest in current tax period shall be calculated as follows:
Calculation of disallowance of interest expenditure under Article 30:
General Interest deduction shall be lower of the following:
- Net Interest Expenditure
- 30 % of EBITDA excluding the exempt income
Limit 1: Calculation of net interest expenditure
Interest expenditure incurred (current tax period) + carry forward (previous tax periods) – Taxable interest income
=> AED 6,50,000 + AED 20,000 – AED 5,00,000
=> AED 1,70,000 will be net interest expenditure.
Limit 2: Taken from above case scenario i.e., AED 1,20,000
Therefore, interest expenditure to be carried forward subsequent tax period shall be AED 50,000 (1,70,000 -1,20,000).
Scenario 3: M/s ABC ltd. has Profit & Loss A/c details for the tax period as under:
| Particulars | Amount in AED |
| Taxable Income (Includes interest income of AED 4,90,000) | 25,00,000 |
| Exempt Income | 15,00,000 |
| Total Income | 40,00,000 |
| Cost of goods sold/services | 18,00,000 |
| Interest | 6,50,000 |
| Depreciation | 5,50,000 |
| Total Expenditure | 30,00,000 |
| Profit & Loss before tax | 10,00,000 |
| Tax | (56,250) |
| Profit after tax | 9,43,750 |
Calculation of disallowance of interest expenditure under Article 30:
General Interest deduction shall be lower of the following:
- Net Interest Expenditure
- 30 % of EBITDA excluding the exempt income
Limit 1: Calculation of net interest expenditure
Interest expenditure incurred (current tax period) – Taxable interest income
Therefore, AED 1,60,000 (6,50,000 – 4,90,000) is net interest expenditure.
Limit 2:
Calculation of EBITDA excluding exempt income
| Particulars | Amount in AED |
| Profit after tax | 9,43,750 |
| Add: Tax Amount | 56,250 |
| Add: Interest | 6,50,000 |
| Add: Depreciation | 5,50,000 |
| 22,00,000 | |
| Less: Exempt Income | 15,00,000 |
| EBITDA excluding exempt income | 7,00,000 |
Now, 30% of EBITDA excluding exempt income shall be 7,00,000*30% = AED 2,10,000
Therefore, deductible interest expenditure for current tax period shall be AED 1,60,000 & no interest expenditure shall be carried forward in subsequent tax periods.
Scenario 4:
Relevant Provision: Article 30 (Clause 4)
The amount of Net Interest Expenditure disallowed under Clause 1 of this Article may be carried forward and deducted in the subsequent (10) ten Tax Periods in the order in which the amount was incurred, subject to Clauses 1 and 2 of this Article.
| Year | EBITDA | Max Limit* | Net Interest Exp | C/f(PY) | Int Exp Allowed** | C/f(Next year) |
| 1 | 1,00,000 | 30,000 | 35,000 | – | 30,000 | 5,000 |
| 2 | 1,50,000 | 45,000 | 35,000 | 5,000 | 40,000 | – |
| 3 | 1,20,000 | 36,000 | 35,000 | – | 35,000 | – |
| 4 | 1,15,000 | 34,500 | 35,000 | – | 34,500 | 500 |
| 5 | 1,10,000 | 33,000 | 35,000 | 500 | 33,000 | 2,500 |
| 6 | 1,15,000 | 34,500 | 30,000 | 2,500 | 32,500 | – |
| 7 | (90,000) | (27,000) | 30,000 | – | – | 30,000 |
| 8 | (50,000) | (15,000) | 30,000 | 30,000 | – | 60,000 |
| 9 | (20,000) | (6,000) | 30,000 | 60,000 | – | 90,000 |
| 10 | 1,00,000 | 30,000 | 30,000 | 90,000 | 30,000 | – |
| 11 | 5,00,000 | 1,50,000 | 30,000 | – | 30,000 | – |
* Max Limit : 30% of EBITDA
** Interest Expense Allowed = Lower of Max limit & (Net Interest Expense & Carry forward from PY)
Net Interest expense is reduced in year 6 by AED 5,000 as there was a repayment of loan at the end of year 5.
