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Everything You Need to Know about Business Loans and Taxes

By Finserv MARKETS - Dec 4,2019
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Everything about Business Loans and Taxes

In recent years, there has been significant growth in the number of small and medium enterprises in India. Due to the enormous opportunity for small businesses in India, a large number of individuals are coming up with innovative ideas for establishing their own business. Since establishing and running a business requires a substantial amount of capital, most entrepreneurs avail business loans to meet their fund requirements. Nowadays, business loans can be availed easily with the help of leading financial institutions. Easy repayment options, instant approval and quick disbursal of the loan amount are some of the major benefits of availing business loans with leading financial institutions. Moreover, there are various tax benefits associated with business loans. Hence, understanding the tax deductions can help business owners save a large amount of money in the long run.

Let us have a quick look at some of the most common income tax deductions for business.

Tax benefits available on a business loan

Here is how you can save tax with a business loan.

  • Tax benefit on the interest paid

The business loan interest rate varies from one lender to another. When you borrow funds, interest is charged, which is a fee that you need to pay to the lender for the use of their money. Hence, an interest paid on the loan can be claimed as a tax-deductible expense. Business loans available on Finserv MARKETS come with attractive interest rates. Moreover, if you have a good credit score, you can avail a higher loan amount at the reduced interest rate. While taking a loan, you can use the business loan calculator to estimate the amount of interest payable. This will help you plan your expenses better.

Before you calculate the tax liability for the year, you need to deduct the amount of interest paid from the profit. It will lead to a reduction in the net taxable profit of the business. There is no maximum limit to claim the interest amount as a tax-deductible expense.

Tax is paid on the profit generated by a business in a year. This profit is calculated after the deduction of business expenses from the gross income. If you have a high business income, the tax will be higher. Hence, in order to reduce the amount of tax, you need to deduct all expenses from the income. Check the processing fees, interest rate, and EMI before you apply for a business loan to evaluate the tax benefits.

Principal amount remains non-deductible

It is important to note that the principal amount on the loan is not tax-deductible. It is only a borrowed amount for a specific duration and not an income. Hence, when you repay the principal amount, you are only repaying the borrowed amount. Thus, this amount is not tax-deductible. You can read more about Income Tax Deductions for Business.

Consider the above-mentioned tax benefits when you apply for a business loan. Availing a business loan is a feasible option for the growth and expansion of your business. It is important to consider the requirements of the business before you narrow down on an option. There are several types of business loans offered by lenders and you need to understand how each one works for you before you select your lender.

Are you a business owner on the lookout for a business loan? Visit Finserv MARKETS and enjoy a quick loan approval. The Bajaj Finserv lending rate is quite reasonable. We offer business loans at low EMI along with other facilities such as flexible repayment tenure and minimal documentation requirements. What’s more? Once your application is approved, you will receive a loan up to INR 30 lakh in your account within 24 hours!

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522