If you’re planning to avail a small business loan, then you must be sure about its impact on your next year’s taxes.
Let’s clearly understand that business loans are tax-deductible!
The effect of small business loans does not change your taxable income. It stays the same fundamentally. As per the Income Tax Act 1961, adding money through borrowings isn’t equivalent to making money in a business. Therefore, the interest levied on a ‘loan for business’ is considered to be totally tax-deductible. Just the principal amount is not alone tax-deductible. A few rules of follow must be kept under check.
Basic Benefits of a Business Loan
Money acts like a catalyst to keep the running and financially stable. Small business loans are proficient financial tool which helps to fit the needs of any business structure. Whether its working capital or inventory stocks, a business loan can fulfil all the requirements. That’s why we say a business loan plays a critical role in business growth. A business loan has the following advantages to offer to its borrowers as mentioned below:
- Small business loans are commonly offered with flexible repayment tenure to make loan reimbursement easy & convenient.
- To aid small and medium size companies, the Govt. has launched several loan schemes with flexible terms and conditions and also a reasonable interest rate.
- Being pronounced as a business expense, the interest paid on business loans is tax-deductible. This cut on interest amount can increase the borrower’s tax burden.
Tax Benefits to be availed under a Small Business Loan
The interest rate on the business loan varies from one lender to another, where it’s out under the “expense” head due to its usage pattern as loan funding to fulfil the business purposes.
Therefore, the interest paid as a part of the loan repayment is claimed as a tax-deductible expense.
The interest paid on the business is deducted from the gross income while calculating the income tax. This will ensure that you have a valid record of transactions & submit as proof as and when asked nu the income tax department.
Read More: What is the Perfect Credit Score for a Small Business Loan?
Principal on Business loan is non-tax-deductible
In an instant loan for small business, the principal is non tax-deductible. You cannot deduct this amount from your gross income at the time of tax calculations. Certainly, this money is not earned but borrowed for business operations. It’s taken on an interest payment and the money needs to be repaid also. So, precisely it’s not an income earned of the business.
With the help of financial technology, it’s become easy to avail a business loan. This provides an opportunity to help your business go bigger & better. Just do not forget to remember that despite all the, a loan has to be repaid eventually.
