GST ON PERSONAL LOANS: CHARGES, CALCULATIONS & WHAT BORROWERS MUST KNOW
Goods and Services Tax, commonly known as GST, plays a critical role when you avail a personal loan, yet many are unaware of its impact.
Goods and Services Tax, commonly known as GST, plays a critical role when you avail a personal loan, yet many are unaware of its impact. While the principal amount, interest rate & monthly EMI payments are GST-free, other charges, such as processing fees, late fees, penalties, etc., are subject to GST. When paired with such a tax, the overall repayment increases, which is crucial to know from a borrower’s point of view. This guide helps you walk through all the essential aspects that you must not miss out on GST on personal loans. Let’s get started!
Where is GST Exactly Charged on Personal Loans?
As mentioned, GST stands for Goods and Services Tax, which is applied 18% on goods and services supplied in India, including financial services in the form of personal loans. Let’s take a glance at where GST is implemented.
1. Processing Fees
GST is charged on the processing fee, a one-time fee, usually a small percentage of the principal. When obtaining a personal loan, lenders, including banks & RBI-registered NBFCs, charge a nominal processing fee that attracts GST. Let’s understand how it works:
Let’s assume,
Processing fee = ?1,000
GST (18%) = ?180
Total processing fee payable = ?1,180
2. Foreclosure / Prepayment Charges
In many cases, borrowers want to close their loan before the tenure actually ends. In such a scenario, a foreclosure charge is applied (depending on the lender). This additional charge is subject to GST, which is 18%.
Let’s assume,
Outstanding loan amount = ?50,000
Foreclosure charge(depending from lender to lender) = 4% of ?50,000 = ?2,000
GST (18% on ?2,000) = ?360
Total foreclosure charges payable = ?2,360
3. Late Payment Charges
A late fee is charged by the lender when you miss the EMI or fail to repay the loan in full at the scheduled time. This penalty (late fee) attracts GST, which automatically enhances the overall repayment.
Let’s assume,
Late payment fee = ?750
GST (18% on ?750) = ?135
Total late payment charges payable = ?885
4. Loan Cancellation Charges
Loan cancelled after approval triggers charges included with GST.
Let’s assume,
Loan cancellation charge = ?1,500
GST (18% on ?1,500) = ?270
Total cancellation charges payable = ?1,770
5. Loan Documentation or Administrative Charges
Any service-related fee is likely to attract GST.
Hopefully, you’ve got enough insights into how GST on personal loans works. It’ll help make conscious financial decisions. If you’re looking for a Quick Paperless loan, consider reviewing the GST part of the loan, along with other crucial aspects. RBI-registered lenders, such as SuryaLoan, transparently outline all forms of changes at the beginning.