Interest tax shield

The tax saved because interest is deductible: interest expense multiplied by the tax rate. It is the main reason debt is cheaper than equity after tax.

A company paying ₹200 crore of interest at a 25% tax rate saves ₹50 crore of tax a year, so the after-tax cost of that interest is ₹150 crore. If the ₹2,000 crore of debt behind it's permanent, the present value of the saving in the simplest textbook case is the debt multiplied by the tax rate, or ₹500 crore.

Such a saving is real only when there's taxable profit to set it against. A loss-making company, or one inside a tax holiday, gets nothing from it this year, and India also caps the deduction for interest paid to foreign related parties. A valuation counts the shield once, either through the after-tax cost of debt in the discount rate or as a separate value in an adjusted present value build, never both.

No taxable profit, no shield.