Availing of a business loan comes with a lot of benefits as the business owner can use the funds for various purposes and get a tax benefit on the interest paid to the lender. In whatever way the funds are being used, a borrower can enjoy tax benefits and lower his/her tax liability.
There are several initiatives run by the central government to boost the economy and support local businesses, whether they are start-ups or established enterprises, such as MSME loans under the flagship Atmanirbhar Bharat, also known as Make in India, which offer collateral-free business loans at a lower interest rate
Furthermore, a number of tax benefits on business loans are also given to the lender-borrower to enable them to reap maximum benefits in the form of rebates and subsidies.
In the Indian business environment, while loans to businesses are offered at appealing rates, they also come with a certain interest rate. The rate of interest that is charged on a loan is directly dependent on the risk involved in granting the loan.
There are tax benefits provided to the borrower by the tax authorities of India which are discussed below:
Deduction on Interest paid on a business loan
The amount paid back to the lender in the form of interest is tax-deductible. A tax deduction in finance parlance refers to the deduction that lowers a person’s tax liability by lowering their taxable income. Besides, the business expenses that are used to grow the business are also tax-deductible.
The borrowers can benefit from a business loan as they can deduct the interest amount from the business expenditure to arrive at the taxable amount. It is thus an effective tool for Micro, Small and Medium Enterprises (MSMEs) to lower their tax liability and use the funds for expanding their business.
The principal amount repaid to the lender is, however, not tax-deductible.
Tax benefits on business expenses
A business loan is provided to help companies grow. A business might use this loan to finance expenditures like purchases of equipment or machinery, working capital investments and facility expansions.
This can be great for the company’s growth and future prospects, but it may have tax implications for businesses. In most cases, you may deduct any interest expense from your taxable income. A business may subtract these operational expenses from the gross annual revenue to arrive at total taxable income.
These expenses could comprise
- Wages to employees
- Office rental, insurance costs
- Office supplies
- Equipment
- Advertising and Marketing
- Bonus to employees
- Gift, Meals, and entertainment cost
Tax benefits under Personal Loan
If you have taken a loan for business purposes (for expansion of your business or for starting the business), more than likely you are looking at claiming tax deductions related to such borrowing.
Your income tax laws allow deduction of interest paid by an individual in the previous year on any loan taken for business purposes.
Time to act
Lenders have a predetermined policy. If a business fits the profile and product policy they are lending to, lenders are willing to lend. They cannot tweak or alter the policy to meet the borrower’s unique circumstances. First-time entrepreneurs who have no or little experience securing loans can find this challenging.
That’s where OneNDF comes in. OneNDF helps entrepreneurs get business loans from banks and NBFCs by providing them with funding options that match their requirements & commitment of funds. We work with nearly every lender offering small business loans in the country to match your unique requirements.
OneNDF is the leading facilitator of business loans in India. With their dynamic and professional team working hard on your behalf, they will find the best loan for your business. OneNDF is a technology-driven loan marketplace that aims to fulfill end-to-end debt requirements of both fundable & nonrefundable businesses in India at the same time completing the borrowing journey on their platform.
