Tax Savings

Tax Benefits on Business Loan in India


A business loan is a form of debt financing. With business loans, you can buy assets, pay for expenses, fund new firm tasks, or repay existing debt. As with any other type of financing, business loans are also subject to taxation under the Income Tax Act. This means that you must know how income tax laws in India may affect your business loans. You can plan your finances keeping that in mind.

The Indian government offers many tax benefits on business loans. If you have taken out a business loan and are paying off EMIs each month, you can claim these in your income tax return.

This article will discuss the tax benefits on business loans in India.

What is a Business Loan?

A business loan is a type of loan given to firms to help fund their tasks. Banks, NBFCs, NBFC-MFIs, and other financial firms may provide the loans.

Firms take out loans to finance their tasks or fund growth plans. The process is quite simple. You approach a lender with your business plan. It should have details about your firm’s fiscal health and projected profit. The lender will then decide whether or not they want to lend you money.

Types of Business Loans Available

Many business loans can help you fund your firm growth, expansion, or cost of buying assets. There are two types of business loans: 

  1. Term Loans 

A term loan is a long-term debt repaid over an agreed time. It is paid in instalments over four to five years. A lender can get a loan against real estate assets. It can be sold if the person defaults on payments.

  1. Working Capital Loans

A working capital loan needs short-term financing for day-to-day tasks. Although some lenders offer longer repayment time, it is repaid within one year at most.

How to Qualify for a Business Loan

The Indian government has made it easier for firms to get loans by offering tax benefits on business loans. The purpose for which a business loan is sought is one of the most important factors in business loan eligibility. 

  • A business owner can take up a loan for two reasons: to start their own business or expand it. For this reason, you need to be sure that your application clearly states what you want to do with the loan sum.
  • Small firms generally qualify for business loans at a lower rate than large corporations. However, they may have to provide collateral in the form of real estate or equipment. 
  • Lenders consider your credit score and financial history while evaluating loan applications. 
  • Most lenders require you to have at least three years of operating history before applying for a business loan. 
  • Lenders also want to make sure you can afford the monthly payments on the loan. This process is called underwriting and determines whether you qualify for a business loan. 
  • Lenders will also ask about your business plan. They may also request proof of you knowing how you will use the loan amount. You should also be able to provide documentation of your current business assets and liabilities.

Tax Benefits on Business Loans 

A business loan has two components: the principal amount and interest. It includes low-interest rates and long repayment time, making it cheaper than other types of loans. Moreover, you can claim tax benefits on business loans

The interest component of a secured business loan is not tax-deductible unless used to purchase immovable assets like commercial property or land. Business owners can only claim tax benefits on business loans for the principal amount paid to the lender.

  • Interest Paid on a Business Loan is Tax-Deductible

The interest paid on a business loan is an expense of the business. It is not taxable to calculate income tax.

First, the rate on the debt must be paid from the business’s income, not from any other source. Second, the debt must be incurred by the business. In addition, only the principal amount paid back will be eligible for the deduction.

You can deduct the rate you pay on a business loan from your taxable income. It includes loans to buy or improve land, buildings, and machinery.

  • The Principal Amount of the Business Loan is Not Tax-Deductible

The principal amount is the total financing or loan amount sourced from the banks or NBFCs to finance business tasks. A business loan’s principal amount is not tax-deductible. Paying income tax on the principal or borrowed amount is not necessary. Additionally, you cannot deduct the amount from your income. 

Taxes are generally due on the net profits generated by entrepreneurs in a financial year. This is true for most types of business loans. The principal amount borrowed is not subject to tax. The net income earned by the business owner is exempted from tax.

Tips to Get a Business Loan

In case you are wondering how to get a business loan in India, here are some tips:

  • Research the banks and NBFCs offering loans through their websites or by contacting them personally.
  • Compare the interest rates and repayment tenure offered by each lender before making a choice. 
  • Check if you will get any freebies along with the loan amount, such as travel or accident insurance. Ask about these benefits before applying for a loan.
  • Finally, remember to stay organised and track all your expenses. Keep good records so there will be clarity when tax time comes around.


Business loans may be a game changer for you as an entrepreneur or seasoned business owner. The funds might be utilised to expand the business or to start a new firm. The tax benefit on business loans through interest payments and certain company costs such as salary or bonuses might affect your ability to get a rapid business loan. 

Before asking for any business loan, you should constantly assess your company’s needs in light of the current market. Business owners who take out company loans may benefit from tax breaks. This is especially since business loans are tax-deductible.

To learn more about the tax benefits on business loans, do visit the website of Piramal Finance. They provide a variety of products and services and also have many informational blogs on various topics.