Tax Saving on business loans in India
Whether you’re thinking about taking benefit of a small business loan, but you’re hesitating to go for it and you’re not sure how it will affect your taxes for next year.
Actually, the answer is – Interest on Corporate loans is Tax-deductible expenses!
Business loans don’t dramatically alter what the other one owes in taxes. Pursuant to the 1961 Income Tax Act, having money through loans is like not earning money for the company. The interest paid on a commercial loan is also called tax-deductible, while the principal sum is not tax-deductible. Yet, then you have to obey certain laws.
How To Take Advantages of Business Loan?
Financing for the company serves as a fuel that helps them to be alive and functional. Business loans are those investment funds designed to meet a business’s funding needs. From meeting the requirements for working capital to buying inventory and from paying the staff to paying rent for the workspace or factory space a business loan has the potential to help you with all these. So, it’s not likely to be incorrect if we suggest a business loan plays a vital role in the growth of the company. Taking up a business loan India offers the borrowers several benefits
- You can use a business loan to serve multiple business purposes.
- Business loans are easily accessible and come with flexible repayment terms which make borrowers’ loan repayment more convenient.
- The government has launched several loan schemes to support small and medium-sized enterprises that have very flexible terms and conditions and off course pocket-friendly borrowing costs.
- Interest paid on business loans is tax-deductible because it is considered an expense for companies. The reduction of interest rates lightens the tax burden on the borrower.
Tax benefits under the Business Loan which can be used?
www.carajput.com; Tax Benefits on Business LoanThe interest rate on business loans varies from lender to lender, where it is classified as a cost owing to the use of loan funding to fulfill business purposes.
Hence the element of interest paid in the loan repayment is claimed as a tax-deductible cost.
The interest payable is deducted from the gross income when calculating income tax on your company. Make sure you keep correct records of your business loan so that you can have proof if the income tax department requests for it.
In the case of company debt principal which is not tax-deductible
The principal balance on a corporate loan is not tax-deductible. And you are not permitted to subtract the number from your gross business income when calculating taxes.
The fact of the matter, however, is that your company is not really getting the principal amount. The cash is borrowed by a third party and is due to be repaid. And it can’t be counted as your revenue from the company.
What does it mean you can not include the balance of the business loan in your gross revenue? And you don’t have to pay income tax on this sum nor should you deduct it from your taxable profits.
In today’s world, getting a business loan has become fairly straightforward; this has become possible with the introduction of advanced banking technology. The loan is readily available and will help you grow your business and hit new heights. However, the crucial part that can not be discounted with any of these advantages is that it’s a loan that has to be repaid over time.