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Lend to your company and draw deductible interest

✍️ EaseValue Advisors · Updated 17 Jul 2026 · FY 2025-26
In short

If you fund the company with a loan instead of only equity, it can pay you deductible interest (Section 36(1)(iii)) — moving profit out to you at an agreed rate rather than as non-deductible dividend.

Why it saves

Interest the company pays on your loan is a deductible expense (if the funds are used for business), reducing its taxable profit. Compare that with a dividend, which is paid out of taxed profit and gets no deduction.

Conditions

  • A proper loan agreement at a reasonable interest rate.
  • The funds must be used for the company's business.
  • Interest is taxable in your hands at your slab; the company deducts TDS under Section 194A.

Useful for funding working capital while drawing a steady, deductible return.

The law behind it
Section 36(1)(iii) Section 194A
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General information for FY 2025-26 (AY 2026-27), not advice on your specific case. Limits, rates and conditions change with each Finance Act and depend on your facts — confirm before acting. © EaseValue Advisors LLP.
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