GST on Personal Loan-Tax Calculations [Processing Fee, EMI]

GST Rate on Personal loan

With the implementation of GST, all services provided by banks and financial institutions will be subject to an 18 percent service tax including gst on personal loan EMI.

If you’re thinking about taking out a personal loan, you might be curious about the GST on personal loans. How much GST on personal loan. Is there a high rate of GST on personal loans? Is there a noticeable difference?

The good news is that, while personal loan costs have increased somewhat, it will not have a substantial impact on your EMIs.

Continue reading below to learn more…

The Effects of the GST Rate on Personal Loans

Everyone’s major concern is if the higher GST rate would raise the interest rate on their personal loan.

Customers should be aware that the GST applies to services provided by the banking and financial sectors.

Interest on a personal loan, on the other hand, is paid at a fixed rate for the purpose of using the money borrowed and is not a service provided by the banking and financial sectors.

As a result, there is no GST on the interest charged on personal loans.

However, there are several aspects of a personal loan that are affected by GST.

Involvement of GST With Personal Loan Emi

  • Your EMI payments are exempt from GST.
  • Service taxes were imposed on loans prior to the implementation of the GST.
  • The rate of service taxes was 15%, whereas the GST rate is 18%.
  • People may believe that because the GST rate has raised by 3%, EMI prices would be influenced.
  • GST, on the other hand, is not charged on loan EMIs or interest payments.
  • It only applies to the processing fees and any fees that your lender imposes on you.      
  • Some consumers may believe that the GST will increase their EMIs.

Assume your lender charges a 1% processing fee on the total amount of your personal loan. If your loan is for Rs.10 lakhs, you will have to pay a processing charge of Rs.10,000. When 18 percent GST is added to this figure, you’ll have to pay an extra Rs.1,800.

Also Read: GST on Food Items -India GST Slabs for Food Items [New Rule]

What Parts of a Personal Loan Are Affected by GST?

The parts of GST on personal loans are as follows:

Fee for Processing the personal loan:

The bank/financial institution provides the service of loan processing. As a result, GST is applied based on the processing cost. The amount of GST charged will be determined by the actual processing fee.

For example, suppose you take out a personal loan for Rs.1,00,000 and the processing cost is 4% of the loan amount.

The processing cost would be Rs 4,000, with 18 percent GST applied to this Rs.4,000, bringing the total to Rs.4,720.

GST on Personal Loan Foreclosure:

Fees for prepayment / Pre-closure or When you prepay or foreclose a loan, the bank or financial institution offers you with a service to assist you with closing the transaction.

As a result, prepayment fees/penalties on a loan are subject to GST.

For example, if the bank imposes a 3% prepayment cost on a personal loan of Rs.1,00,000, the amount due as a prepayment fee would be Rs 3,000, and with 18% GST, the total would be Rs.3,540.

As you can see, the sum isn’t excessive, but if you’re still concerned, there are methods to reduce the amount you pay in GST on your personal loan.

How much gst on Personal Loans and GST with most banks

A processing fee of 1% to 2% of the loan amount is often charged by banks.

In addition, there is a 2% to 5% Pre-Payment charge.

Consider the following scenario:

Assume you have a personal loan of 50,000 rupees.

The following are the fees you must pay the bank for its services: • A processing charge of 1% of the loan amount

• A 2% prepayment penalty on the outstanding principal loan amount

Fees charged by the bank for a personal loan of 10 lakh Rupees.To be paid to the bank (Amount)When Service Tax is applied at a rate of 15%, (pre-GST Era)When 18 percent GST is imposed, a fee is due (Post GST Era)GST's Impact (GST minus Service Tax)
Processing fees of 1% of the loan amount₹ 10,000₹ 1400₹ 1800₹ 350
Pre-payment fees of 2% of the outstanding principal amount₹ 20,000₹ 3,000₹ 3,600₹ 600

As you can see in the example above, GST adds Rs.300 to the processing fee and Rs.600 to the pre-payment costs, both of which are insignificant sums. Finally, the GST has a negligible impact on personal loans.

Note that the tax rate has increased from 15% to 18% (a 3% increase), however this has no bearing on the EMI cost. The loan repayment is exempt from GST. It only applies to the services provided by the bank to the borrower in connection with the processing of the personal loan. The personal loan repayment and interest rate are unaffected by GST.

Process to Save Money on Personal Loans Due to GST

The processing and prepayment fees determine how much GST is paid on a personal loan. As a result, the easiest option to save money on GST is to take up a loan with a reduced processing fee or prepayment penalty. It would be useful to compare different loan options.

However, it is also important to pay attention to the loan’s interest rate and, in general, strike a balance between all of the fees and charges imposed on a personal loan.

How can getting a Loan from comparison website Help You Save Money on Personal Loan GST?

You can find personal loan providers in the country, offering low-interest loans with minimum paperwork.

The loan’s interest rates and other fees are reasonable and competitive, and it can help you save money on GST as shown below –

  • You may find Personal Loans that have low interest rates starting at 1.33 percent each month.
  • Personal loans have no prepayment penalties can also be found on such comparism websites; however there may few conditions like you can only foreclose a loan after paying three or six EMIs.
  • There will be no GST applied to the transaction because there is no prepayment charge.

Note: GST law went into effect on July 1, 2017, and since then, all goods and services in India, with the exception of petroleum products, alcoholic beverages, and electricity, have been taxed at a standard rate.

Processing fees starts at a reasonable 2% of the total loan amount. Because processing expenses are comparatively cheaper there, you will have to pay less GST.

EMIs on credit card personal loans: GST vs. Service Tax

Customers can avail Personal Loans on EMI or can convert credit card transactions into EMI payments at any of the major banks. Personal Loan like Jumbo Loan & Insta Loan by HDFC is very easy to avail or converting large purchases in to EMIs makes repayments more reasonable and allows customers to save money at the same time. The consumer must pay the minimum amount due on their credit cards as well as the EMI amount at the conclusion of the billing cycle.

Since the implementation of GST, it has become critical for clients to understand whether or not their credit card EMI payments would be affected by GST.

The following example may be used to better understand how GST on credit card EMI interest works:

When a purchase is made on a 6-month EMI with a credit card, the total interest payable in 6 months is Rs.1064, plus a processing fee of Rs.300.

ParticularsLoan amountInterest RateEMI tenureInterest paid in 6 monthsProcessing chargeTotal
Amount200000.186 months1064300
Service tax at 15%159.645204.6
GST at 18%191.5254245.52

According to the table, before GST, while paying 15% service tax, a total tax rate of Rs.204.6 was imposed on interest and processing charges, but after GST, the total tax rate is Rs.245.52.

A fee of Rs.40.92 is added to the total.

The impact of extra tax under GST is negligible if all payments are made on time because the GST is computed on the interest amount and not on how much one uses his or her credit card.

GST Rates List | by GST Council of India

To find all GST Rate List on GST Council of India Click Here

GST on Personal Loans

GST on Personal Loans Frequently Asked Questions (FAQ’s):

What is the personal loan GST rate?

Processing costs were subject to a 15% service tax as part of the personal loan charges.

Personal loan processing fees are subject to an 18% GST.

Is GST applicable to personal loan interest?

The Service Tax rate was 15%, whereas the GST rate is 18%. However, this is not the case because GST is not charged on loan repayments or interest payments.

Only the processing fees and any other fees paid to the bank are subject to GST, excluding principle repayment and interest payments.

How do you calculate GST on a personal loan?

The amount of GST charged will be determined by the actual processing fee.

For example, suppose you take out a personal loan for Rs 50,000 and the processing cost is 4% of the loan amount.

The processing cost would be Rs 2,000, with 18 percent GST applied to the first Rs 2.000, bringing the total to Rs 2,360.

Is the loan subject to GST? Is there a GST on interest on a loan?

Interest on loans is exempt from GST.

Service taxes were imposed on loans prior to the implementation of the GST.

The service tax rate was 15%, but the GST rate is 18%.

Will GST be charged on no cost EMI?

The interest amount would be subject to GST by the bank…

The bank’s interest will, however, be passed on to you as an upfront reduction when you make your purchase, essentially providing you the advantage of a No Cost EMI.

This reduction does not include GST on the amount of interest that your bank will charge you.

Is GST included in EMI?

People may believe that because the GST rate has raised by 3%, EMI prices would be influenced.

GST, on the other hand, is not charged on loan EMIs or interest payments.

It only applies to the processing fees and any fees that your lender imposes on you.

Will GST be charged twice if I pay invoices using a credit card?

If you pay your utility bills using credit cards, you will not be charged GST.

How can you claim GST input tax?

The GST law requires suppliers to deposit GST and file GST returns in order to assist purchasers in claiming the input tax credit. This is how the GST is collected from everyone.

When it comes to banks and other financial organizations, what is the GST rate?

A tax of 18 percent is applied on banks and financial firms.

This is a 3% increase above the previous service tax rate of 15%.

What effect would GST have on me as a service provider?

Previously, all service providers were required to pay a service tax to the federal government.

The GST has taken the place of the service tax.

The amount of GST will be determined by the ‘place of supply.

In terms of GST, what is a ‘supply’?

According to GST laws and regulations, every ‘supply’ of goods and services for a value amount would be subject to CGST (to be paid to the government) and SGST (to be paid to the state) (to be paid to the state).

In terms of personal loans, how does GST differ from past taxes?

Goods and services are taxed differently. At the production stage, goods are subject to excise duty, and at the point of sale, they were subject to VAT. On the other hand, services are subject to a service tax.

GST, on the other hand, makes no distinction between products and services, as well as between merchants and manufacturers.

Conclusion – GST on personal loan

The Products and Service Tax (GST) has been regarded as one of the most significant tax changes in recent history, simplifying the country’s current tax systems on goods and services. While many people are concerned about the impact on some services, such as personal loans, the sum that will be paid is not excessive.

Loan Aggregating Websites loans are significantly more cheap, even after taking in GST rates, due to their numerous benefits.

Readers also read Union Bank Mudra Loan-(2021) How to apply Online

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