Are business loan repayments tax deductible?

In India, when you take out a business loan, only the interest you pay on that loan can be claimed as a deductible expense for tax purposes. This means that the interest portion is treated as a legitimate business cost under the Income Tax Act, 1961, and can be subtracted from your business income when calculating your taxable profits. As a result, your overall tax liability may be reduced.

It is important to note that the actual amount you repay towards the principal—the original sum borrowed—is not eligible for any tax deduction. The tax benefit applies solely to the interest paid, as this is considered an expense incurred in the process of running and growing your business.

To make use of this deduction, you should keep clear records of your loan agreements, interest certificates from your lender, and proof of payment. This will help you support your claim if required during tax assessments.

This rule is applicable to most types of business loans, for example, working capital loans, term loans, and loans for purchasing equipment, as long as the borrowed funds are used for business activities. If the loan is used for any personal purpose, the interest paid on that portion will not qualify for a deduction. Always consult a tax professional for guidance specifically tailored to your specific situation.