Practical Accounts And Taxation
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When a businessman borrows funds from financial institutions for business purposes, he has to incur cost in terms of interest, commitment charges, brokerage etc. which are generally known as borrowing cost. Accounting treatment of borrowing cost was earlier guided by Accounting Standard- 16 and now by ICDS IX.These expenses are covered u/s 36(1)(iii) of IT Act. However, brokerage or commission or interest other than on borrowing is covered u/s 37. For claiming deduction u/s 36(1)(iii) the assessee has to show the nexus of the borrowing with the purpose of business. Commercial usefulness can also be a ground for claiming deduction under this section. Section ICDS IX covers the accounting treatment of borrowing cost however such ICDS cannot supersede decisions of the Courts.
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