Every business owner understands the need for a business loan and how indispensable it is. There are many reasons why a business loan is required, and that depends upon the need and what type of business it is. It can be used for the expansion and growth of the business, renovating or for changing the old machinery, installing and upgrading the plant, hiring new employees, marketing, and promotions of the business also there are many reasons to take business loans. Some business owners are good at management they plan for taking business loans when it requires proper planning and management of funds. Without adequate planning, it can become difficult and complicated to handle finances and lead to further financial mismanagement.

Taking a business loan comes with a lot of benefits as the business owner can use these funds for many purposes and get a tax benefit on the interest paid. The amount paid back to the lender for the business loan taken is known as the interest amount. The amount paid back to the lender in the form of interest is tax-deductible and can be written as the payments made for the business. The expenses used to generate income from business are known as business expenses and can be deducted from the total revenue to get the taxable amount. It is a great tool for small business owners and entrepreneurs to lower the tax liability and use the funds for growing the business. The total amount taken from the lender is not tax-deductible and cannot be deducted as a part of the business expenditure. The total amount availed in the form of a business loan is known as the principal amount, and there is no requirement to pay tax on the principal amount. It is considered as part of gross income, and the tax is paid on the net income earned by the business owner.

A business requires certain expenses for operation and maintenance, and those expenses can be marked as business expenses that are used for generating income. Such expenses can be subtracted from the overall business revenue to reach out to the taxable income.

Below is the list of business expenses that are not a part of business revenue.

  • Wages paid to the employee
  • Office rental cost of the office premises
  • Office supplies such as stationery
  • Expenses incurred on the insurance of business
  • Advertising and marketing expenses
  • Bonus paid to the employees