Categories
Finance

All You Need To Know About CIBIL Score For Getting a Bike Loan

If you’re looking to get yourself a two wheeler loan to buy yourself a bike, there are certain key things that you should take into consideration. Two wheeler loan interest rates and two wheeler loan eligibility criteria are two of them. In addition to these two, there’s also another one – your CIBIL score. 

As a matter of fact, your CIBIL score also plays a major role when it comes to availing a two wheeler loan. Now, if you’re wondering what this score is, here’s everything that you need to know.

What is the CIBIL score?  

The CIBIL score is essentially a three-digit numerical number that gives lenders like banks and financial institutions a preview of your credit worthiness. This is primarily why the CIBIL score is also referred to by many as the credit score. The higher the CIBIL score, the better your chances of getting a loan approved are. The score starts at 300, which is the lowest, and goes all the way up to 900, which is the highest.

What is the CIBIL score used for? 

As you’ve already seen above, the three-digit CIBIL score is used by financial institutions to determine your two wheeler loan eligibility. If your rating is found to be low, lenders might not approve your loan application. On the other hand, a high rating is more favorable since lenders would be far more willing to grant you a loan. 

What is the ideal CIBIL score for getting a bike loan?

The ideal CIBIL score for getting a bike loan tends to vary with the lender. While many lenders don’t offer loans to individuals whose score is below 750, others might be willing to offer individuals whose score is in the low 600s. But, if you wish to maximize your chances of getting a loan, it is always a good idea to have a credit score of 750 or above. 

Is it possible to improve your CIBIL score?

Of course. There are plenty of different ways to improve your score. Here’s a quick look at some of them. 

  1. Pay all of your loan obligations like your loan EMIs and your credit card bills on time before the due date. 
  2. Don’t just stick to paying the minimum amount due on your credit card, pay the entire statement amount.
  3. Keep your loan enquiries and applications to a minimum. A high number of hard inquiries into your credit score can lower it. 
  4. Refrain from utilizing your credit cards to their absolute maximum limit. 

Conclusion 

Now that you know how important the CIBIL score is when it comes to getting a two wheeler loan, always ensure that you keep it well above the 750 mark. This way, your chances of getting your loan application approved increases multifold.  

Categories
Business Finance

Are There Any Tax Benefits on Business Loans in India?

A business loan in India comes with various tax exemptions and benefits under the Income Tax Act, 1961. Entrepreneurs who have secured any form of business credit can enjoy tax benefits and reduce the overall tax burden favourably. 

When a business services a loan, they repay the loan amount in monthly instalments or EMIs, which comprise of two main components. And are usually decided by the lender based on the creditworthiness of the borrower. 

EMI amount = Principal component + Interest component

Under the ITA, however, only the interest component of the EMI amount will be deducted as tax, not the principal bit. 

Moreover, to avail the business loan tax benefits, the total business income or revenue should not include any expenditure on –

  • Employee bonus
  • Office space rent
  • Office supply
  • Maintenance cost
  • Staff salary
  • Business advertisements

Taxable income

Any sum of money used to service the business debt does not comprise the total revenue, income, or profit for the company. And consequently, not included in the total taxable income of a business.

Gross or the total income of a business, typically constitutes the amount used to pay the interest on a loan. Because the company pays the interest amount over and above the borrowed amount; the expenditure is included in the total taxable income.

Further, borrowers only need to pay tax on the net business income earned in a financial year. As a result, the principal component, which does not comprise the total revenue earned by the business, is usually excluded from the total taxable income. 

Tax calculation

Any business entity can calculate the taxable income with the formula below:

Taxable income = Gross revenue/income – tax-deductible business expenses

Borrowers can write off any payment made towards the interest cost as a business expense and avail the tax exemptions. Mainly because the interest amount on the EMI is essentially the extra money you spend to avail the credit facility from a lender. So, the amount is taxable. 

Company owners can, therefore, use a business loan EMI calculator to compute the tax liability on the availed loan, for both fixed and variable interest rates. They need to subtract the fixed principal component from the total EMI amount to calculate the interest component, which will constitute the total taxable income. 

Businesses should also maintain updated, accurate records of the loan to ensure they can furnish essential documents and claim the tax benefits conveniently. 

Key takeaways 

  • All forms of business loans are tax-deductible under the Income Tax Act, 1961
  • Tax exemption only available on the interest component of the EMI amount 
  • Tax benefits on business loans can lower the overall tax burden
  • Tax exemptions are not available on the entire EMI amount
  • The principal component of the EMI amount is excluded from the taxable income