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As a borrower, it is essential to understand the impact of GST on personal loans. The Goods and Services Tax (GST) was implemented in India on July 1, 2017. Since then, the new tax regime has affected all financial products and services. In this article, we will discuss the impact of GST on personal loans and what borrowers need to know. GST is a comprehensive tax system that has replaced all other indirect taxes in India. It is a destination-based tax system that is levied on the value-added at every stage of the supply chain. Personal loans are unsecured loans that are availed by individuals to meet their personal financial requirements. These loans are offered by banks and non-banking financial companies (NBFCs) at a certain rate of interest.
Impact of GST rate on on Personal Loans
GST has a significant impact on both the loan amount and the interest rate of personal loans. The rate of GST on personal loan amount and interest rate is 18%. This means that if you take a personal loan of Rs. 1 lakh, the GST levied on the processing fee will be Rs. 1,800. Similarly, the GST levied on the interest rate will be 18% of the interest amount.
Components of Personal Loan Affected by GST:
GST on personal loan affects the following components:
- Processing Fee
- Prepayment of Foreclosure Charges
Let’s look at this in detail.
GST on Loan Processing Fee
Loan processing fees are charged by banks and NBFCs to cover their administrative costs. GST is levied on the loan processing fee at the rate of 18%. This means that if a bank or NBFC charges a processing fee of Rs. 5,000, the GST levied on it will be Rs. 900.
GST on prepayment charges
GST is applicable on prepayment fee. If you take a personal loan now, 18% GST will be levied on the fee. GST will also be charged on bounce charges, penal interest and on outstation collection.
How to Calculate GST on Personal Loans?
Calculating GST on personal loans is a straightforward process. To calculate the GST on the processing fee, you need to multiply the processing fee by 18% (GST rate). For example, if the processing fee is Rs. 10,000, the GST levied on it will be Rs. 1,800.
To calculate the GST on the interest rate, you need to multiply the interest amount by 18% (GST rate). For example, if the interest amount is Rs. 5,000, the GST levied on it will be Rs. 900.
How to reduce GST rates on personal loans?
Since GST is charged on personal loan’s processing fee and prepayment penalty, the only way to reduce GST rates is to take a loan with low processing and prepayment fees.
GST for Personal Loan Borrowers
The increase in the interest rate and processing fee due to GST may make personal loans more expensive. Therefore, it is advisable to compare the interest rates and processing fees of different banks and NBFCs before availing of a personal loan.
GST on Personal Loans for Self-Employed Individuals
Self-employed individuals can also avail of personal loans. GST is also levied on the interest rate and processing fee of personal loans for self-employed individuals. The process of calculating GST on personal loans is the same for self-employed individuals as it is for salaried employees.
GST on Personal Loans for Salaried Employees
Salaried employees can avail of personal loans to meet their personal financial requirements. GST is also levied on the interest rate and processing fee of personal loans for salaried employees. The rate of GST on personal loans is 18%, which has increased the interest rate of personal loans by 3%.
Conclusion
GST has had a significant impact on personal loans. It has increased the interest rate and processing fee of personal loans, making them more expensive for borrowers. As a borrower, it is essential to understand the impact of GST on personal loans and compare the interest rates and processing fees of different banks and NBFCs before availing of a personal loan. If you wish to have the flexibility of choosing the loan amount, setting an EMI amount as per your monthly budget, and loan tenure, you can opt for Airtel Flexi Credit. Check out the website to know more!
