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Tata Capital > Blog > Loan for Business > Business Loans and Taxes – Everything You Must Know

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Business Loans and Taxes – Everything You Must Know

Business Loans and Taxes – Everything You Must Know

Proper financing is one of the most important needs of a business venture. Be it a startup or a large company, you will need capital to not just stay in business but also grow. With business loans, you can get your business off the ground or use the funds for expansion.

As an entrepreneur, it is of utmost importance to know how the system of taxation works while running a business. Here are some important points you should know about business borrowing and taxes, which would help you manage thetax on business income more efficiently.

Loan repayment is not entirely a business expense

The principal amount of the loan to be paid back is not a business expense, since you are simply returning a sum of money borrowed. However, the interest is deductible from your income and accounts for expenditure on your part.

Loans are usually not taxable income

Most loans taken out for business purposes are not considered as business income. Exceptions arise in situations where you negotiate with your lender to reduce debt. As for the tax on the loan, you might ask whether or not there can be tax deduction on business loans. Remember, the principal amount is not taxable and will not be considered while calculating the taxable income.

Additional Read: Simple Tax Saving Tips for Small Businesses

Tax-deductible business expenses

Taxable income = Gross Revenue – Tax-deductible expenses

Tax-deductible business expenses are all the basic expenses which are necessary to run a business. The interest on a loan is a tax-deductible expense and can reduce the tax burden on an entrepreneur.

Tax benefits from EMI

EMI is an expense, which when deducted from the gross income, can significantly lower the total amount of tax to be paid. The best way to reduce the tax burden is to deduct expenses from the gross income as efficiently as you can.

Additional Read: How to avail Tax Benefits on Business Loan?

Tax exemption with MSME and Udyog Aadhar registrations

Having an Udyog Aadhar registration provides several benefits like getting access to easy business loans and subsidised rates. Apart from that you can also enjoy exemption on excise and indirect taxes. MSME registrations also have similar advantages like availing loans at low interest rates as well as benefits of tax rebate. So, if you are a small business or a startup, there are very good reasons to register for Udyog Aadhar or register as an MSME with the government.

As a business owner, you need to keep in mind the various tax benefits you can get from loans.

Get in touch with Tata Capital today and check your eligibility for loans. Get access to high loan amounts at reasonable business loan interest rates today. Our collateral-free loans are available at reasonable interest rates to MSMEs of all sizes.

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