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Is No Cost EMI really no cost?

CA Sarath R Krishnan 
on 25 May 2020

LinkedIn


Today, No cost EMI is one of the main attractions of online shopping sites and offline retailers. In certain online shopping sites there is also a separate section for No Cost EMI available products and in case of retailers also they spend very much on advertising No Cost EMI. As per RBI circular(RBI/2013-14/292) dated September 17, 2013 pernicious practices of banks includes No Cost EMI, they said that the concept of zero percent interest is non-existent. So the question arises “IS NO COST EMI IS REALLY NO COST”?

The most popular way through which online shopping sites offer ‘No Cost EMI’ is by offering discounts equivalent to the total amount of interest to be paid. Example: The price of phone you want to buy is Rs.9990/-. The phone is purchased under the scheme of 3 months No Cost EMI(3330*3) through credit card. Consider interest rate as 13%.  In this scenario the bank calculates the interest amount through reverse method ie Interest + Principal = 9990/-. Principal portion is Rs.9777/- and interest is Rs.213/-. Monthly EMI we have to pay is Rs.3330/-(3330*3=9990).  

The cardholder thinks that even if the interest is included in the total amount the EMI we have to pay is Rs.3330/- as agreed through online shopping sites and we don’t require to think about interest and other calculation included in the Credit Card. But every credit cardholder should be aware of the interest amount included in this EMI. GST on interest amount included in the credit card EMI is also charged to your card statement in addition to the EMI. If any doubts regarding this please check your monthly credit card statement you can see that GST @ 18% on interest is also charged in addition to the EMI.

Is No Cost EMI really no cost

As per GST Notification No.12/2017 dated 28/06/2017 Heading No 9971 (27) Services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount(other than interest involved in credit card services) is exempted. So it is clear that interest on credit card services is not exempted under GST and it is taxable @18%.

 

So we can say that the total amount is borne by the credit card holder in ‘No Cost EMI’ is normal EMI agreed through Online e retailers/ offline retailers plus GST @18% on interest amount included in the EMI.

 

The author Sarath R Krishnan is a Chartered Accountant Practicing in Pathanamthitta, Kerala 


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