Growth is essential for a business. A business cannot survive in this competitive climate without increasing revenue and profit. There are many ways to increase revenue, from innovative solutions to performance marketing. But sizable capital is required to do all that.
The best way to fund such plans is through a business loan from lending institutions like Lendingkart. Multiple business loans are available in India, each suited for a specific situation. This article elaborates on the tax benefits of business loans.
WHAT IS A BUSINESS LOAN?
India’s banks and non-banking financial companies (NBFCs) offer unsecured business loans. The major goal is to meet the immediate needs of an expanding company. Most financial institutions provide term and flexi loans to meet a company’s commercial needs. Commercial loans are another name for business loans.
These loans are available to sole proprietors, privately held companies, partnership firms, self-employed persons, and shopkeepers. Business loans are a widely used financing mechanism for many small business owners. A business loan is a loan that is specifically intended for usage in businesses. Like other loans, it involves the creation of a debt that must be repaid with interest.
How to Get a Business loan?
Application Form:
Most banks provide online and offline business loans. Download the application form and upload the required documents to apply for a business loan in India. Once the documents are verified, the sanctioned loan amount reaches the beneficiary’s account within a week.
Strong supporting documentation:
Ensure you have the most recent proofs and documentation to support your business plan. Avoid any documentation or information that is unclear or deceptive. The lender will be reassured of your authenticity by a proper document.
Is the Business Loans Tax-Deductible In India?
According to the Income Tax Act of 1961, the business loan amount is not tax-deductible in India. Only the interest paid on a business loan is a tax-deductible expense on behalf of the business. The interest you pay to your lender is the EMI you pay monthly.
The EMI has some component of the principal you borrowed and the interest your lender charges on the loan they give you. Here, only the interest amount is tax-deductible, which helps you lower your tax liability.
WHAT ARE THE PROS AND CONS OF BUSINESS LOANS?
Here are the pros of collateral-free business loans
- It can be used for any business-related planned or unplanned expense
- Easy and convenient to access, and No security is needed
- Reasonable interest rates
- Flexible repayment terms
- No need to share the profits with anyone
Here are the cons of an unsecured business loan
- Not every business may qualify for a loan
- The company must be at least 3 years old and must have been profitable for at least 2 years
- The loan amount sanctioned depends on the individual’s credit rating, lender’s policy, and other conditions
- Those with a low credit rating may get rejected or be charged a higher interest rate
What Are the Tax Benefits Of Taking A Business Loan In India?
While the principal amount is not tax-deductible, you can take tax benefits on business loans in other ways.
1. Tax Benefits From The Interest On A Business Loan
The money you initially borrow for business purposes is tax-deductible, i.e., you do not have to pay tax on those expenses.
It reduces your tax burden. The interest you pay back to your lender is considered a business expenditure and deducted from the business’s total revenue, helping you reduce your tax liability.
2. Tax Benefits From Business Expenses
Any type of business expense is exempt from taxes. Thus, the loan money you spend for business operations and expansion becomes tax-deductible. A few business expenses that do not form your revenue and save you from taxes are:
• Employee wages and bonus
• Office rent
• Office supply cost
• Advertising and marketing expense
• Business insurance expense
Notably, the personal loan available for a business is also tax-deductible.
Eligibility for availing of a Business Loan:-
Business loans in India are available for MSMEs, SMEs, small business owners, traders, retailers, artisans, private limited and public limited companies, sole proprietorships, partnership firms, limited liability partnerships, etc. To avail of the loan, you have to meet the following criteria –
Age: You must be a minimum of 18 years of age at the time of applying for the loan and a maximum of 65 years at the time of loan maturity.
Nationality: Indian with no past criminal records.
Repayment tenure: From 12 months to 60 months.
Loan Amount: As business owners, you can get a minimum loan of Rs. 10,000; the maximum amount can go up to Rs. 50 lakhs, depending upon your profile, business needs, etc.
Credit Score: Your credit or CIBIL score should be at least 650 or above.
Existence of Business: Your business should exist for 2 years from incorporation.
Business Experience: Your business should exist and work a minimum of 1 year in the same occupation line.
3. Apply For Business Loans With LendingKart:-
Lendingkart is a leading instant business loan provider. We provide quick loans for small businesses with small financial requirements of up to INR 50 lakh with minimal business loan eligibility requirements. You can check the interest rate at your nearest LendingKart branch or online.
The entire process, from application to disbursement, is 100% online, and you receive the amount within 24-48 hours. You can fulfill various business needs, repay them per cycle, and take advantage of business loan tax benefits. Apply for a Lendingkart business loan today!
Conclusion
Businesses require capital to ensure a steady cash flow to run their operations smoothly and consistently. Business loans help fill in this cash flow crunch for businesses, which are considered an integral component of a business.
The interest component of such loans and business expenses undertaken are eligible for deduction from the business income, helping reduce the tax liability. So, one should avail of business loans to ensure business continuity and to lower the tax burden.
