How to get Tax Benefits on Business Loan?

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How to get Tax Benefits on Business Loan

Availing capital for meeting business requirements ensures there is a regular flow of cash in the business for various business needs and helps to promote the growth in the business. However, along with the principal amount of the loan, there are different kinds of fees and charges involved with the process of availing a loan. Thus, minimizing these costs is one of the primary motives of every business person.

How to reduce the costs of Business Loans?

Before availing a loan, it is crucial that you compare the business loan rates of different lenders. Along with the rates charged by the lending institutions, it is significant to analyze other costs and charges associated with these loans. Once you have done that, you must also check the business loan eligibility criteria to ensure that credit is processed smoothly at the lowest rate of interest. 

Along with getting the best bank for a business loan, saving taxes on your business loan is one of the ways to reduce the costs of a loan.

 Let’s understand everything about getting tax benefits on a business loan.

What is a Business loan?

 A business loan is a capital availed from lending institutions for business needs such as purchasing equipment, updating technology, maintaining a stock of plant and machinery, buying raw materials, daily business operations, paying rent and salary, etc.

  • Like every other loan, a borrower needs to pay the principal amount interest charged and additional fees and charges associated with a business loan.
  • The rate of interest of a business loan varies from lender to lender.
  • You can also avail of a business loan through various government schemes at a cheaper rate of interest. One of such scheme is the Mudra loan. It is a refinancing loan provided by banks and small finance companies for micro, small and medium enterprises.

Tax Benefits on Business Loan: As per the Income Tax 1961, the income earned from the business is different from the business loan, and thus the interest paid on the business loan is termed as business expense above other expenditures of the business and is deductible from the gross business income. 

Total tax= Business Expenditure- Total Revenue

No Tax Deductions on the Principal Amount: The principal amount borrowed as a business loan does not provide any tax benefits as per Income Tax Act, 1961. It is counted as a business expense, and thus you do not have to pay any taxes, but it is also not available for getting tax deductions as well.

Conclusion: To claim such tax benefits on your business loan, you must ensure that the records of business loans are maintained appropriately so that there are no hurdles in submitting the proofs to the Income Tax Department.

Summary: How to get Tax Benefits on Business Loan?

A business loan is a capital availed from lending institutions for business needs such as purchasing equipment, updating technology, maintaining a stock of plant and machinery, buying raw materials, daily business operations, paying rent and salary, etc.

Tax Benefits on Business Loan: As per the Income Tax 1961, the income earned from the business is different from the business loan, and thus the interest paid on the business loan is termed as business expense above other expenditures of the business and is deductible from the gross business income. The principal amount borrowed as a business loan does not provide any tax benefits as per the Income Tax Act, 1961. It is counted as a business expense, and thus you do not have to pay any taxes, but it is also not available for getting tax deductions as well.

Also, Read This: WHY YOU SHOULD NOT BUY YOUR NEW HOME USING SAVINGS?

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