Impact of GST on Loan

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 loan 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 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. So, your GST on loan processing fee is Rs. 900.

GST on prepayment charges

GST is applicable on prepayment fee. If you take a personal loan now, 18% will be your personal loan GST rate which is 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  for GST for personal loan 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 interest on loan 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 loan interest 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!

Also read: Minimum Salary Required to Get a Personal Loan

1. What is the impact of GST on personal loans?

GST impacts personal loans by increasing the cost of loan-related services such as the loan processing fee and prepayment penalties. A standard personal loan GST rate of 18% is applied on these charges, making personal loans slightly more expensive for borrowers.

2. Is GST applied to loan processing fees?

Yes, GST is applied to loan processing fees at the rate of 18%. For example, if the processing fee is Rs. 5,000, the GST on loan processing fee will be Rs. 900.

3. How to calculate GST on a personal loan?

To calculate GST on a personal loan, you need to apply the standard 18% personal loan GST rate to the loan’s processing fee and interest charges. For example, if your processing fee is Rs. 10,000, you will multiply it by 18% to get a GST amount of Rs. 1,800.

4. What is the GST rate on prepayment charges for personal loans?

The GST on prepayment charges for personal loans is 18%. This also applies to other penalties such as bounce charges, penal interest, and outstation collections.

5. Does GST make personal loans more expensive?

Yes, GST on personal loans increases the total cost for borrowers by raising the charges on loan-related services, such as processing fees and prepayment penalties. The GST against loan components is set at 18%, making the overall loan slightly more expensive.

6. How does GST affect self-employed individuals taking personal loans?

For self-employed individuals, the GST on loan interest and processing fees is the same as for salaried individuals, i.e., 18%. This increases the cost of borrowing through personal loans for both categories.

7. How does GST affect salaried employees taking personal loans?

Salaried employees are also subject to GST on personal loans, with an 18% tax applied to loan processing fees and interest rates. This has made personal loans more expensive by increasing their overall cost.

8. Can I reduce GST on personal loans?

The only way to reduce the effect of GST on personal loans is by choosing loans with lower processing fees and prepayment charges, as GST is calculated on these components.

9. Does GST apply to loan interest?

GST is not directly applied to the loan interest itself, but it is applicable to the loan processing fee, prepayment charges, and other related costs.

10. What are the factors affecting GST on loans?

The main factors impacting GST on loans include the processing fee, prepayment penalties, and additional charges like bounce fees and penal interest. The 18% GST is applied to these costs, raising the overall expense of taking out a personal loan.

11. What is the GST rate on loan processing fees?

The GST rate on loan processing fees is 18%. This applies to all types of personal loans, making it important for borrowers to factor in these additional costs when calculating the total loan expense.