Private Credit: Interest On NCDs Recharacterized As Dividends

• Published date: 07 July 2022
• Subject Matter: Tax, Income Tax
• Law Firm: Resolut Partners
• Author: Resolut Partners

The income tax department has held that interest income derived from non-convertible debentures (NCDs) was 'fictious' in nature and had not been appropriately offered to tax. In its reassessment order dated 29th March 2022, the Revenue claimed that the interest income was, in fact, a dividend.

The recharacterization of interest into dividends by tax authorities poses significant concerns for offshore debt investors as well as investee companies and shows the aggression with which the tax authorities are re-looking at structures.

In this Analysis, we...