This write up, seeks to provide guidance on what qualifies as financial cost for the purposes of Section 16 of Act 896.
Per Section 9 of the Income Tax Act, 2015 (Act 896), all expenses which are wholly, exclusively and necessarily incurred in the generation of income from business or investment are deductible in determining the chargeable income from the business or investment. This is a general rule which is subject to any specific rule provided in the Act.
Financial cost in most cases, qualify as an expenditure that has been wholly, exclusively and necessarily incurred in the generation of income.
A person incurs financial cost when that person incurs losses with respect to a financial instrument with the exception of interest. However, Section 16 of Act 896 places a limitation on how much of financial cost other than interest can be deducted in calculating the chargeable income of a person from an investment or a business.