You can claim Tax Benefits on your Business Loans?

Business LoansRunning a business is not an easy task. It is a fact that it requires hard work and enough financial backing so that you do not run into troubled waters. If you, as a businessperson do not have financial backing, it is only natural that you would avail a business loan.

However, a business loan is not just the outflow of EMI and interest. Did you know that there are tax benefits for business loans? If you are new to this concept, here is all the information you would need to know what the benefits are and how you can claim them. Read on to know about the tax benefits.

Understanding business loan

Business loans are typically used by businesses. The loan amount is utilized to set up new businesses or expand existing operations. A business loan can be either unsecured i.e. without any collateral or secured i.e. with collateral. Companies like Tata Capital give up to Rs 50 lakh business loans without any collateral. This is a preferred way of getting a loan, because arranging for a collateral or security may be tough for a young business.

In India, tax benefits can be availed if a business owner has availed a business loan. This is irrespective of whether business loans were for investment, growth, or any other business purpose.

Why tax benefit

The tax department understands that a business loan is availed for the benefit and growth aspects of the business. A growing business is good for the country and the economy. But, for the business owner, a loan is liability. You have generated income and profit to repay the business loan as per the terms and conditions.

Different tax benefits

Let us understand the tax benefits.

According to the Income Tax Act, a borrower can avail different types of tax benefits if she/he is repaying a loan.

One way of getting tax benefit is to claim the EMI expense paid for the business loan. You can calculate the same first on your business loan EMI calculator. The interest on business loan is tax-deductible, which means this expense for the business can be deducted from gross income. To gain full advantage of this sop, the business owner should maintain proper accounts for these types of EMI payments. Use a business loan EMI calculator to know the principal and the interest component of your business loan.

Do remember that the principal amount of business loans is not tax-deductible.

The second way of getting a tax benefit from a business loan is to see if the EMI interest payment can be structured in such a way that in the initial period of repayment, you pay more interest and less of principal. In this way, a young business can front-load their interest payment so that the interest component helps reduce the taxable income of business by a substantial amount. A lower taxable income will mean lower tax outgo. In this way, you can use the EMI interest to get bigger tax benefit during initial periods.

It is best to understand what works best for you and your business. Before jumping into any conclusion choose an option that will work in your favour.

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