Tax benefits can be availed if a business owner has availed a business loan for investment, growth, or any other business purpose. There are several tax benefits offered by the Indian government on business loans. Let's see the tax benefits and exemptions on loan for the business.
Companies need financial help to start a business, to take care of its daily expenses like purchase of the raw material/machinery, to pay its employees, to maintain the cash flow, etc and also for business growth plans. And to fulfil these financial needs, a company can obtain new business loan/small business loans.
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According to the Income Tax Act, 1961, a borrower can avail different types of tax benefits if he is repaying a loan. Availing a business loan is solely dependent on the business owner’s requirements. So, they cannot choose between different types of business loans (flexi loan, SME loan, MSME loan, and machinery loan) depending on the tax benefits they offer. Having said that, a business owner can certainly use the loan amount to cut the income tax amount he pays every year to the government.
Business loans, be it a new business loan or small business loan is available at a business loan interest rate, which is the excess amount to be paid to avail a business loan.
A business loan in India comes with interest charges. And business loan interest rates are termed as an expense which is required to be paid by the borrower for borrowing the money from lender. Notably, the interest charges are the fees to be paid for borrowing money from the lender for the business. There are tax benefits on the interest costs. Therefore, let us have a look at the below-stated tax benefits of the business loan in India which may persuade the company to opt for it:
The Business loans and business loan interest rate are considered as a liability by the companies. But it’s a relief for the companies to know that the business loan interest rate is exempted from tax.
As per the income tax act, the interest amount paid on the business loans from business profits is exempted from tax because the financial help taken from a business loan is generally not considered as business income or profits by the income tax act.
The Principal of the Business Loan:
The principal amount of a business loan is usually not exempted from the tax. However, since the business loan is not recognised as business income or profits by the income tax act, it is not considered as a part of the gross total income. Though the company may not get tax exemption on the principal amount the business loan amount isn’t considered as a part of gross income.
Thus, it has become very easy owing to online business loans and instant business loan facility to obtain a business loan for a company and help their business function and grow.
Frequently Asked Questions
How can one apply for a business loan?
The business loan being online business loan can be easily availed by simply uploading the documents required for business loans on the online portal of the financial institutions.
What are business loan requirements?
Apart from a high credit score, the business loan requirements are basic like identity proof, address proof, bank statement copy, ITR, agreement copy, business registration copy, passport-sized photos, etc.
What is the business loan EMI calculator?
Business loan EMI calculator is basically a formula by which the equated monthly instalment can be calculated.
What is the business loan eligibility?
The business loan eligibility is that the business needs to be profitable, the applicant should be minimum of 25 years of age and income should be at least Rs. 15 lakhs.
Is the business loan interest tax deductible?
Yes, the interest paid on loan for a business is tax deductible. The tax authorities of India allow the business owners get tax benefits on business finance. The interest is paid to the loan lenders for using their funds. This amount is an expense for the business and is deducted from gross income. The business owners are suggested to maintain proper accounts for these types of payments.
Solving Real problems
I have been running my business for over twelve years but have not been able to undertake expansion activities. I applied to Ziploan and they cleared my loan application in a very short span of time.
I approached Ziploan for an equipment finance loan. Their eligibility criterion was easy to fulfill because it required only 2 years ITR and 10 lacs of annual banking credit.
I always thought that loans and credit facilities were only available to large businesses with significant turnover. I never thought I would be eligible to qualify for a business loan too. Ziploan is boon for small enterprises like me.
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