Everything You Should Know About Tax Benefits on Business Loans

Everything You Should Know About Tax Benefits on Business Loans

The interest you pay on your business is deductible. It is usually deducted from your gross revenue.  According to the Income Tax Act of 1961, one can get a deduction on business loan interest, covered by your business earnings.

It is predefined in the Income Tax Act that monetary used in the form of business loans is not similar to business revenue, profit, or earning.

Getting a business has many advantages since the enterprise holder can utilize the money for several purposes and gain a tax benefit on the interest paid to the loan provider. No matter how the finances are utilized, a debtor can have the tax benefits and lessen their tax accountability. The amount repaid to the loan provider is the interest amount.

Business holders apply for a business loan in Lucknow to meet the immediate funds necessities and many business associated requirements. Money obtained in the form of loans can be utilized for business development and many other business activities.

These activities can be purchasing raw materials, handling cash flow, acquiring machinery, appointing new employees, or paying off salaries. Continue reading this write-up to know about the tax benefits on business loans.

Who is Eligible To Apply For A Business Loan In India?

Small enterprise owners, retailers, traders, SMEs, private limited companies can acquire business loans.

You need to fulfill specific eligibility criteria before applying for a business loan:

  • The age of the loan applicant must be between 18 and 65 years.
  • The applicant must be a citizen of India with no past criminal records.
  • Credit rating should be 650 or more.
  • The business should be at least two years old.

Various Kinds of Business Loans

  • Machinery loan
  • Bill Discounting
  • Microloan
  • Letter of credit
  • Working Capital Loan
  • Small Business Finance
  • Term loan

Tax Benefits Offered By the Tax Authorities of India

Business expenditures

Business expenditures incurred to run and sustain processes can be deducted from total business profits to appear at the taxable income. These are a few business expenditures that are not a portion of business profit. 

  • Office supplies like stationery
  • Salaries paid to the staff
  • Bonus paid to the staff
  • Expenditures incurred on the business insurance
  • Marketing or advertising costs

Interest paid on the loan

The amount reimbursed to the loan provider in the form of interest is tax-deductible. A tax deduction in finance jargon is the deduction that reduces an individual’s accountability by lessening their taxable income. Moreover, the business expenditures utilized for business expansion are tax-deductible, too.

Debtors can capitalize on business loans since they can subtract the interest from the business expenditure to arrive at the taxable income. Therefore, it is helpful for MSMEs to lessen the tax accountability and use the finances to grow the enterprise.

Things to Know Before Availing a Business Loan

  • Regardless of the type of business loan, tax benefits and interest paid on the principal amount are tax-deductible.
  • The monthly payment of the interest amount by the debtor on the principal amount is also tax-deductible. Also, it must be presented as a portion of the business expenses.
  • The principal amount is considered a portion of the gross revenue and won’t be considered when calculating the taxable earnings.
  • Loan for business acquired by the debtor is not a portion of the revenue, and thus, it mustn’t be a portion of taxable income.

MSME Loan Scheme benefits

It is pretty easy to get a loan under the MSME or CGTMSE scheme. MSMEs are Micro, Small, and Medium Enterprises that generally need some kind of financial support while they are expanding their business. They need funds for buying machinery, meeting operation expenditures, or hiring new employees. Let us have a look at some of the top benefits of acquiring a business loan under the MSME scheme:

Collateral free loans

The Indian Government has made collateral-free or unsecured loans obtainable for MSMEs. This scheme assures finances to all micro or small businesses, and both established and new businesses can benefit from this scheme.

Lower rates of interest

No enterprise owner wants to spend wealth in paying excessive amounts of interest. Loans under the MSME scheme come with lower rates of interest, making it a well-liked funding tool.


MSME loans are generally taken to fulfill short-term business necessities. These loans are flexible since there is no long-term commitment.

Leave a Reply

Your email address will not be published.