One of the largest expenses incurred by lending and leasing businesses is interest on borrowed funds.
For example:
- A lending institution borrows money from banks or investors and lends it to customers.
- A leasing company borrows money to purchase vehicles, machinery, equipment, or other assets, which it then leases to customers.
Because these businesses rely heavily on borrowed funds to generate income, interest paid on those borrowings is a significant business expense.
Generally, interest incurred wholly and exclusively in the production of business income is deductible when computing taxable profits, subject to the provisions of the Income Tax Act.
What Has Changed?
The Finance Act, 2026 amends Section 16 of the Income Tax Act by replacing the words “lending and leasing business” with “lending or leasing business, or both.”
Why Is This Important?
Previously, the wording “lending and leasing business” could have been interpreted to mean that the provision applied only to institutions carrying on both lending and leasing activities.
The amendment removes that ambiguity by confirming that the provision applies to businesses engaged in:
- Lending only
- Leasing only
- Both lending and leasing
This provides greater legal certainty and reduces the possibility of disputes arising from interpretation of the previous wording.
What This Amendment Does Not Do
The Finance Act, 2026 does not introduce a new interest deduction.
Instead, it clarifies that the existing provision applies to institutions carrying on a lending business, a leasing business, or both.
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