Business Loans just doesn’t just help with scaling up your business and provide with capital needs, but also offers tax benefits. The interest paid on Business loans is tax deductible which acts as an incentive to boost the confidence to avail loans to scale up businesses.
According to Income Tax Act, 1961, one can avail deduction on interests on business loan that is paid from business profits. It is predefined in the Income Tax Act that money utilized in the form of business loans is not the same as business income, earning revenue or profit for the business.
Business Loan benefits
Capital infusion through Business Loans fuels business growth. They are the financial tools intended to meet the business requirements. From Working capital requirements to purchasing inventory, the loan can be availed to utilize in emergency situations. The credit option plays vital role in business growth. Here are a list of business loan benefits.
- Government is supporting MSMEs through friendly interest rates and flexible terms and conditions.
- Loan can help meet different purposes.
- The Interest on Business loan is exempt from tax which lowers tax burden.
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The interest on business loans varies across lenders and all the interest paid on the loan will be considered a business expense and is tax deductible. Make sure the records of loan repayment and the levied interest is maintained to avail the tax incentive.
The Business Loan Principal is not Tax-deductible
The principal amount of Business Loan is not tax-deductible. Hence, you are not allowed to deduct this amount from your gross business income while calculating taxes. But the fact of the matter is the principal amount is not earned by your business. The money is borrowed from a third-party and needs to be repaid. Hence, it cannot be considered as the income for your business.
Availing a business loan in today’s world has become fairly easy, this has been possible with the involvement of advanced technology in the banking sector. The loan is available widely and can help your business to grow and reach new heights. However, the important thing which can’t be ignored between all these benefits is that it’s a loan and hence it has to be repaid over some time.