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ALL YOU NEED TO KNOW ABOUT TAX BENEFITS ON BUSINESS LOANS - INDIA

Businesses need capital to fund the expenses of their operations, pay for expansions, and so on. For the same, business loans are available that helps entrepreneurs and business owners operate their businesses without any hiccups.

To define a business loan in India – it is a debt that a bank or a non-banking financial corporation offers to startups and entrepreneurs, where they are obligated to repay the loan amount for a chosen tenure and as per the bank’s or NBFCs terms and conditions.’ There are some best banks and NBFCs for business loans in India, from where you can avail the required capital for your business operations. Business loans are also called corporation loans sometimes.

When applying for a loan, a question that pops up in everyone’s mind is whether the loans are taxable or not? And with business loans too, borrowers have this question in mind. So let us tell you that out of all the benefits that business loans offer, one of them is the tax benefit. As per the Income Tax Act 1961, business loan borrowers in India can avail tax deductions on the loan interest, which is paid from the profits of the business. In the Income Tax Act, it is predefined that capital in the form of business loans is not the same as business income (where revenue or profit is earned). Whether you are a male entrepreneur or a women entrepreneur, business loans in India are available for all. As mentioned, tax benefits are available in the interests of the business loan. Let’s see what is a business loan interest and the tax benefits that you can avail for yourself.

What is Business Loan Interest?

Business loan interest is the additional amount of money that borrowers have to pay to the lender. The interest is paid over and above the total loan amount, borrowed by you. The interest rates may vary from lender to lender; you can check out Muthoot Finance’s loan options for availing them at the lowest interest rates.

Availing a business loan can give you tax benefits, where you can easily write off the interest as business expenditure. The business expenses are deducted from the total revenue of the business to get the tax amount. Interests on the business loans come under these business expenses, which helps in tax exemption. However, one thing that you need to keep in mind is that tax deduction on a business loan’s principal amount is not applicable and cannot be shown as a deduction on the business expenditure.

Glancing through the Tax Benefits on Corporation/Business Loans

Summarising the tax benefits on a business loan, here are the points that you need to keep in mind:

  • You can avail tax exemption on the interest amount of the business loan

  • Tax deduction on business loan interest is deducted from the gross income/revenue of the business

  • If you take a personal loan for business purposes, it is tax-deductible and may give you additional tax benefits

  • Principal loan amount doesn’t come under tax deductions and hence, offers no tax benefits

Additionally, you have to also fulfil some basic criteria, defined by the lender for availing tax deductions on business loan interest. Also, the repayment amount in the form of EMI is not tax-deductible.

Eligibility for Availing Business Loans

Business loans in India are available for MSMEs, SMEs, small business owners, traders, retailers, artisans, private limited and public limited companies, sole proprietorships, partnership firms, limited liability partnerships, etc. For availing the loan, you have to meet the following criteria –

Age: You have to be of a minimum of 18 years of age at the time of applying for the loan and a maximum of 65 years at the time of loan maturity.

Nationality: Indian with no past criminal records.

Repayment tenure: Though the repayment tenure varies from lender to lender, the usual tenure ranges from 12 months to 60 months.

Loan Amount: As business owners, you can get a minimum loan of Rs. 10,000 and the maximum amount can go up to Rs. 50 lakhs. The maximum amount can exceed up to Rs. 10 crores or more, depending upon your profile, business needs, etc.

Credit Score: Your credit score or CIBIL score should be at least 650 or above.

Existence of Business: Your business should be existing for a minimum of 2 years from the date of incorporation.

Business Experience: Your business should be existing and working a minimum of 1 year in the same line of occupation.

Types of Business Loans that You Can Borrow for Availing Tax Benefits

A business loan in India that the company borrows can be used for various business expenses, including payment of salaries and wages of the workforce, office supplies, inventory or business projects, etc. However, before applying for the loan, you have to be clear with the objective as the lender (bank or non-banking financial corporation) will ask for the reason before sanctioning the loan amount. There are different types of business loans that you can apply for like,

  • Term Loan – Short- and Long-Term

  • Working Capital Loan

  • Merchant Cash Advance

  • Micro Loan

  • Small Business Finance

  • Machinery Loan

  • Bill Discounting

  • Letter of Credit

  • Overdraft Facility

  • Equipment Finance

  • Farm/Construction Equipment Finance

Other than these, you also have options for unsecured business loans, which you can apply for as per your business needs. Business loans offer numerous benefits to the borrowers, irrespective of whether you take the loan from a bank or any other financial institution. When applying for business loans, make sure to discuss all the aspects of your business as well as the loan (business loan tax, etc.) with the financer.

Muthoot Finance is one of the leading non-banking financial corporations in India. Right from offering vehicle loans, gold loans, personal loans to foreign exchanges, gold coins, money transfer, etc., Muthoot Finance is your one-stop destination for financial services in India.

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