Question

Due to which of the following reason Debt Financing is a cheaper source of finance?

Q: Answer-Due to which of the following reason Debt Financing is a cheaper source of finance?

As per Indian Income tax Act, companies have to pay dividend distribution tax on payment of dividends to shareholders. Contrary to it, company gets tax benefit on interest payment to lenders or debt because interest is treated as expense of the company and therefore it is liable to pay tax only on net profit after deducting interest amount.