Tax Benefit on Business Loan

Business Loan Tax Benefits Under Section 80C

April 21, 2022 • 4786 views

As an entrepreneur, getting a Business Loan could help turn your business into a successful venture. But this loan is subject to interest rates, an additional expense you must bear. Thankfully, under Section 80C of the Income Tax Act, you can claim tax benefits on the amount paid as interest.

Read on to learn which expenses are tax-deductible and what to consider before claiming tax benefits on a business loan.

Is the Interest Paid on Business Loan Tax Deductible?

When you opt for a Business Loan, the interest amount you are supposed to repay the lender is considered tax-deductible under Section 80C of the Income Tax Act. You can include it under the list of fixed business liabilities when claiming a tax deduction under this Section.

This category of expenses contributes towards revenue generation and thus can be removed from the gross revenue to retrieve taxable income. By following the above strategy, small business owners can lower their overall tax liability.   

Is the Principal Amount on a Business Loan Not Tax-Deductible?

No, the principal that you secure from your lender is not tax-deductible. This is because the Income Tax department considers this component as a part of your gross income as it brings an influx of emergency funds. Therefore, you must furnish the interest calculated on your business’s net income.

Which Expenses are Tax-Deductible?

As per Section 80C of the Income Tax Act, tax-deductible business expenses include costs related to one’s business operations. This comprises office rent, utilities, salaries, raw materials and supplies, expenses for marketing, conveyance, and professional services, etc.

However, detailed records must be kept and time-to-time consultation with a tax professional is recommended to ensure tax deduction eligibility and maximise your deductions. This helps to reduce the overall taxable income.

Also Read: The Ultimate Guide on Business Asset Loans in India

Things to Consider Before Claiming Tax Benefits on a Business Loan

Before you claim a tax deduction, do the following:

  • Cross-check that your Business Loan meets the eligibility criteria set by local tax authorities to claim benefits.
  • Ensure that the loan will be used for a legitimate business purpose, as tax benefits are typically tied to limited business activities.
  • Maintain all the records of loan-related documents. This includes the primary loan agreement, EMI receipts, and related invoices. These papers will come in handy while supporting your tax claim.
  • Most importantly, seek legal advice to ensure compliance with governmental regulations, minimising the risk of any discrepancies during audits.

By considering all these factors, you can navigate the complexities of tax benefits related to your Business Loan responsibly.

Benefits of a Business Loan

A Business Loan is often preferred by individuals owning an SME because of several undue advantages, like:

1. Instant Supply of Cash: It helps remove financial constraints that otherwise hinder business prospects. The abrupt capital infusion enables a business owner to make vital decisions involving hiring, investing in infrastructure, exploring the market, etc. 

2. Presence of Tax Benefits: A Business Loan brings in several tax benefits on the payable interest under Section 80C of the Income Tax Act. This, in turn, contributes to significant cost savings for small and mid-sized enterprises.

3. Extra Advantages Available: Apart from the tax benefits on a Business Loan, there are other prominent benefits that encourage an entrepreneur to explore new markets. It helps increase the overall market value and build a long-lasting reputation.

4. Fosters Business Growth: A Business Loan also caters to gadget purchases that directly impact an organisation’s productivity and efficiency. Enhancing in this space allows a company to consistently stay competitive and challenge its peers.

5. Diversification of Business: With the help of a Business Loan, companies can diversify their product and service portfolio. It brings in more resilience against market downturns and industry-centric challenges.

Also Read: What is a Business Loan? Meaning, Types & How to Apply?

Business Loan Eligibility

Business loans can be availed by MSMEs, SMEs, Entrepreneurs, Small Business Owners, Artisans, Traders, Retailers, Manufacturers, Private Limited and Public Limited Companies, Sole Proprietorship, Partnerships Firms, Limited Liability Partnerships, etc. The following are the eligibility criteria for Business Loan from Poonawalla Fincorp:

  • Age Criteria: Minimum age of 22 years at the time of loan application and a maximum of 62 years at the time of loan maturity.
  • Loan Amount: Minimum Rs.1,00,000 and maximum  Rs. 30 Lakh.
  • Repayment Period: 12 months to 36 months.
  • Credit Score: 750 or above.
  • Citizenship: The applicant must be an Indian citizen.
  • Business Existence: Minimum 3 years from the date of incorporation.
  • Turnover of the Company: minimum annual turnover of Rs. 20 Lakh.

How to Apply for a Business Loan Online?

Poonawalla Fincorp offers you a tax-saving Business Loan that you can get by following these steps:

Step 1: Click on the ‘Apply Now’ button.

Step 2: Fill out the application form.

Step 3: Upload important documents.

After verification and approval, the loan amount will be transferred to your bank account.

To Conclude

The tax benefits of a Business Loan help you save substantially on the payable interest, making the EMIs affordable. Remember that a Business Loan is the best way to expand your venture. So, apply for a Business Loan from Poonawalla Fincorp and unlock exclusive offers on this product. 

Frequently Asked Questions

  • Which loan types qualify as a Business Loan?

A Business Loan is specifically designed to address the financial needs of a commercial enterprise so it can operate without any hassle. Some of the different Business Loans offered by NBFCs like Poonawalla Fincorp include Business Loans for working capital, MSMEs, proprietorships, and retail shops.

  • What does interest in a Business Loan mean?

The additional sum that a borrower pays while repaying the principal amount of a Business Loan is known as interest. The rate of interest on a Business Loan is one of the significant factors that determine your monthly loan repayment amount. Hence, it is important to consider lenders like Poonawalla Fincorp who offer Business Loans at attractive interest rates and flexible repayment terms.

  • Will the principal amount of a Business Loan be a part of business income?

No, the principal amount of a Business Loan is not considered a part of business income. It is a borrowed amount that needs to be repaid and does not impact the income of the business.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Business Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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