What tax benefits can you enjoy on a business loan?

 If you’re running a business, you can be pretty sure that you’ll need a business loan at some point of time. You may require a businessloan in Delhi or other metro cities of the country for a number of reasons. These may include, paying the wages of the employees, expanding the business, buying new equipment or upgrading the old one, acquiring a new working facility etc. But many people hesitate from taking a business loan in Delhi because they are unsure as to how the loan would affect their taxes. If you are one of those people, you need not worry – because business loans are tax-deductible.

Fundamentally, business loans have no effect on your taxes. As per the Income Tax of Act 1961, getting a certain sum of money sanctioned via a loan isn’t the same as earning the same amount of money via business. This is why the interest that is levied on a business loan is tax-deductible. However, you should note that the principal amount isn’t tax-deductible.

What are the advantages of taking a business loan?

In this world driven towards growth and development, to stay relevant in the market as a business, you need to constantly evolve as well. But that is easier said than done, because any type of upgradation requires capital and there is a very small demographic that has pockets deep enough to support business growth. Therefore, to stay alive and kicking among cutthroat competition, you need business loans. There are a plethora of specific benefits to taking a business loan. Some of them include: 

• To grow and expand the business.
• Compared to other types of loans, business loans are much easier to avail and they come with a lot of flexible repayment options, which means that they are much easier to pay back as well.  
• In a bid to support the MSME segment, the government has launched a number of schemes that offer pretty flexible terms and conditions and much lower interest rates.
• Best of all, the interest that is being paid on business loans is tax-deductible since it is considered as a business expense. This is quite beneficial as the borrower doesn’t have to bear the huge burden of taxes on his shoulders.

What tax benefits are available for a business loan? 

The rate of interest of business loans depends upon the lender and it is considered as an expense since the loan funding is used to fulfill certain business purposes. Therefore, the interest that is paid upon the repayment of a business loan is considered tax-deductible.

When the income tax is calculated for your business, the total interest that is paid against the loan is deducted from the gross income of the business. To ensure no issues arise in the future, make sure that you keep clear records of all your business loans. This way, if the Income Tax department asks for proof, you’ll be able to present it easily.

Important! Principal is not tax deductible

You must keep in mind that the principal amount of the loan is not tax deductible. The only expense that is tax deductible is the interest you pay to the lender. However, it is also to be noted that since you do not earn the principal amount but borrow it from a third party, it is not considered as your income. Therefore, neither is this amount tax deductible nor is it taxable.

With the emergence of NBFCs (Non-Banking Financial Companies) the process of taking loans has become quite simplified and whether you want a small or a big business loan – you can get it sanctioned within a few working days as they have a quite impressive turnaround time.