Meaning of Interest Waiver

• An interest waiver refers to the cancellation of interest obligations by a lender.
  
• It may arise through restructuring, settlement, or compromise of loan terms.
  
• The waived interest may have been earlier recognized as an expense.
  
• It is treated as income when waived interest is credited in the Profit and Loss Account.
  
• The waiver improves book profit in the year of accounting recognition.
  

Inclusion in Book Profit under MAT

• MAT is computed on net profit as per the audited Profit and Loss Account.
  
• Interest waived and credited to P&L is included in book profit for MAT.
  
• There is no specific exclusion under Section 115JB for interest waivers.
  
• All credited amounts form part of the MAT base unless explicitly excluded.
  
• Even if the waiver is capital in nature, it is included if routed through P&L.
  

Adjustment of Earlier Add-Backs

• If the waived interest was earlier disallowed in MAT computation, reversal may be permitted.
  
• The deduction is allowed only if the original expense was added back under MAT.
  
• A proper link must exist between the prior disallowance and current reversal.
  
• Deduction cannot exceed the amount previously added back.
  
• Year-wise reconciliation of MAT adjustments is necessary.
  

Capital vs Revenue Classification

• Interest waiver related to working capital loans is treated as revenue in nature.
  
• If it relates to term loans for fixed assets, it may be capital in nature.
  
• Even capital waivers are included if routed through Profit and Loss Account.
  
• Waivers directly credited to reserves without affecting P&L are excluded from MAT.
  
• Classification must follow applicable accounting standards and disclosures.
  

Audit and Disclosure Compliance

• Interest waiver details must be disclosed in financial statements.
  
• Auditors verify classification and route of accounting entries.
  
• Form 29B must reflect waiver-related income in MAT computation.
  
• Proper documentation of loan settlement and ledger entries is essential.
  

Non-disclosure or incorrect classification can lead to tax disputes.