Running a small or medium business in today’s world is no walk in the park. From chasing clients to paying salaries, handling vendors, and keeping up with taxes, it’s a lot.
Running a small or medium business in today’s world is no walk in the park. From chasing clients to paying salaries, handling vendors, and keeping up with taxes, it’s a lot. So if you’re taking out an SME loan to grow or manage your business, here’s some good news:
You might be able to save on taxes while you’re at it.
Yes, seriously. A business loan doesn’t just give you funds to move forward it can also help reduce your tax burden if you use it wisely. Let’s break down the tax benefits of SME loans in plain, no-jargon language.
Not exactly.
You don’t get a tax break on the loan amount itself, that’s money you’re borrowing, not earning. But here’s the good part:
The interest you pay on your SME loan can be claimed as a business expense.
And that can lower your taxable income. So in a way, the loan helps you twice, once with funding, and again when it’s tax time.
For example, if you borrowed ₹10 lakhs to buy new equipment or expand your store, you would have to pay ₹1.2 lakhs in interest over the course of the year. 1.2 lakhs of rupees? You can subtract it from your business income when calculating taxes.
Example:
Every little bit helps, right?
Most types of business-focused loans are eligible for these tax benefits things like:
The important thing is: Use the loan for business purposes, not personal ones.
If you use the loan to buy something long-term for your business like machinery, vehicles, or a new POS system there’s even more good news.
You may be able to claim depreciation on those assets plus the loan interest.
That’s two tax benefits:
Now that’s a smart way to make your money work harder for you.
Keep these handy:
Great question. If you used the loan to buy goods or services that included GST (like buying machinery), you might also be able to claim input tax credit on that GST amount.
Also, if you paid any legal or CA fees while setting up the loan, those can sometimes be counted as business expenses too.
Let’s be honest: most business owners are so busy running the business, we forget about these little financial tricks that can save us real money. But claiming the right tax benefits from your SME loan can make a noticeable difference.
So next time you sit down with your accountant, ask:
“Hey, are we claiming the loan interest from our SME loan as a business expense?”
You’ve earned every rupee you save.
Yes, as long as the loan is used for business purposes. Whether it’s a working capital loan or equipment financing, the interest you pay can generally be claimed as a deduction.
You can report loan interest under ‘Business & Professional Income’ in your income tax return (ITR), specifically in the ‘Profit and Loss Account’ section under “financial costs” or “interest paid.” Your CA or accountant can help with this.
Not always, but it’s strongly recommended especially if you’re dealing with large amounts, multiple loans, or assets purchased with borrowed funds. A CA ensures you don’t miss out on eligible deductions or make filing errors.
Not at all. Claiming a legitimate tax benefit does not impact your credit score or loan history. In fact, timely repayments and proper usage may strengthen your financial profile for future borrowing.
Yes! Charges like processing fees, legal fees, or consultancy charges paid for setting up the loan can often be classified as business expenses and may be deducted in the year they are incurred.
If you prepay the loan early, you’ll pay less interest overall which means a smaller deduction. But yes, any interest actually paid until the prepayment is still eligible for a tax deduction.
