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A business loan is a tool that can help you boost your business revenue and give it a fresh life. With a business loan, you can finance your various business needs and ensure that there are no financial roadblocks in its smooth functioning. While you might know that a business loan can be significantly helpful for your enterprise's success, you must also know that it can help you save money too. You can claim various tax benefits on business loans that can help you reduce your taxability and save money.


Here are some tax benefits, which you can claim on business loans.


Interest Repayment on a Business Loan


When an expense/income is tax-deductible, that amount is deducted from your total taxable income, and you need not pay taxes on them. You can get a tax deduction in your taxable income for the amount paid for the business loan interest

In short, the interest payment you make towards the business loan is tax-deductible. It is because these are considered as a business expense and not business revenue. To claim this tax deduction, you can write off the interest payment as an expense. However, you must know that the principal repayment of the business loan is not tax-deductible.  


Business Expense


The Income Tax Act also allows certain business expenses as deductions. But these should be directly related to the business. These are called tax-deductible business expenses. These expenses are used for the daily operations of the business that converts into profits and growth of the company. Such expenses are allowed to be subtracted from the overall business revenue to reach the taxable income. However, not all expenses used in operations are constituted in the business revenue. You can therefore, calculate taxable income by subtracting tax-deductible expenses from gross revenue.


Following are some expenses that do not form a part of business revenue


  • Employee wages
  • Office rent
  • Office supplies, like stationery
  • Expenses incurred on the insurance of business
  • Advertising and marketing expenses
  • Bonus paid to the employees
  • Leasing cost
  • Entertainment, gifts and meals expenses.


Points to Consider for Business Loan Tax Benefits


  • The principal component of the business loan is a part of gross income and so does not have any tax benefits.
  • The interest component can be shown as a part of business expenditure and can be claimed as a tax deduction from taxable income.
  • Any business loan, including term loan, bank loan for business, working capital loan, etc., is tax-deductible. Even a personal loan taken for business purposes is tax-deductible.
  • You are allowed to repay the business loan through EMIs. However, in such a case, only the interest component of the EMI would be tax-deductible and not the entire EMI.


A business loan can help you enjoy tax benefits and save money. However, if you are not well versed with the taxation provisions, it can be tricky to claim the deductions in your income tax return. It would be best to approach a financial expert and claim the appropriate tax benefits.

Read Also: How to run your own Logistics business

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.