Know more about Tax Benefits on Business Loans in India

tax benefits on business loans in india

No doubt, Indians revel in taking business loans. Well, courtesy to exemplary advancements in the Indian Fintech ecosystem. Lending is much easier than ever before. Growing and expanding up business in India is now no more a hassle prone task.  And what made it possible is easy disbursement of business loans. Business loans are the financial products intended to fulfill the funding needs of a business. These can be used for meeting working capital requirements, inventory and equipment purchase, and for other business-specific growth purposes.  But still with so simplification in the loan process, what majorly bothers the business owners is loan repayment and interest rates. And even over it comes the worries looming due increase in tax with the surge in the capital. 


If you are business owner considering growing your business by availing business loan and repayment worries are holding you back then keep calm and rejoice. Help is arriving!! The good news is that business loans do not fundamentally alter what one owes in taxes. According to the Income Tax Act, 1961, receiving capital through loaning isn’t the same as earning revenue for the business. Thus, the interest levied on a business loan is considered to be tax-deductible as a business expense.

What are the Benefits of Business Loans?

Taking up a business loan India offers a number of benefits to the borrower.  

  • The loaned amount can be used to serve various business purposes.
  • Easy and flexible repayment options offered by various NBFC’s (non-banking financial institution) make the loan reimbursement a bit more palatable.  
  • The distinct customized loan types offered by lending institutions can be used to meet the varying demands of the business as per the requirements. 
  • The interest paid on business loans is tax-deductible due to it being termed as a business expense. This reduction in interest payments lightens up the borrower’s tax burden.

So, next time if you are posed with a question “Is your business loan tax deductible”, then confidently nod your head with “yes”. 


What Tax Benefits can be availed under Business Loan? 

Business loans in India come along with varied rates of interest. This interest imposed is categorized as an expense due to loan funding being utilized in fulfilling business purposes.  The interest charges are the fees needed to be paid to the lender on borrowed money. Therefore, the interest paid on loan is claimed as a tax-deductible expense.


 Before calculating the tax liability the interest paid is deducted from business profit; eventually leading to a reduction in net taxable profit of the business. However, for claiming interest amount as a tax-deductible expense no maximum limit has been specified.


What are the Tax-Deductible Expenses?

Conventionally, the tax is paid on the net profit earned by a business in a financial year. This net profit or income is calculated after deducting some essential expenses from gross income. The income tax brackets follow a progressive trend, i.e. greater is the net income higher would be the taxation. Therefore, to lower down the taxes levied all expenses should be deducted cautiously from the gross income.


One such expense that can aid in lowering down your income tax amount is EMIs on the business loan. It can significantly impact to lower down your taxable income. Thus, before seeking to apply for a business loan it is necessary to check for interest rates, processing fees and other obligatory charges on loan. Acquiring this information will help you in evaluating tax benefits that a business loan can offer you. 


Is Interest in a Business Loan Tax Deductible?

If your loan is being utilized for business purposes, then the answer is certainly “Yes”. The payment of interest on the business loan is tax-deductible. The tax authorities of India, allow the business owners to avail tax benefits on business financing. Since the interest is paid to the lending institution as a fee on borrowed capital it is counted among business expenditures. It regarded as the standard entity to be included in business tax deductions. Thus, your business loan interest charges are deducted from gross income to calculate the net taxable income. However, to claim this benefit business owners are required to maintain proper financial records for these payments.


While an important thing to be considered here is that the principal loan amount is not included in the tax deduction category. It is just the borrowed amount issued for certain duration and not an income. Hence, the repayment of the principal is just a process of returning the borrowed amount. Thus, it is not entitled to being a tax-deductible entity. 


We hope, this guide helped you explore the tax benefits associated with business loans. Availing a business loan in today’s rapidly changing scenario is a feasible option for business growth and expansion. However, before narrowing down options it is imperative to assess the requirements of the business. Also, do not forget to visit FlexiLoans is a leading business loan provider in India. With a vast network spread to 100+ cities, FlexiLoans has established a niche in the segment. It specializes in providing quick and hassle-free business loans at most competitive interest rates.

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