Even though Goods and Services Tax (GST) has been there for more than a year in India’s tax administration space, confusion still mounts as to how it’s going to apply across the products and more so in the lending sphere. A lot has been said in a myriad of financial journals only to leave loan borrowers and card shoppers confused. Keeping in mind the confusion gaining grounds, it’s time to dive deep to find out the exact impact of GST Percentage on the lending products. The article aspires to solve the confusion aptly, letting you understand the dynamics of the GST in a simple way.
Same GST Rate to Apply on Loans and Credit Cards
The government has fixed 18% rate to be applied to products such as personal loans, home loans, car loans, credit cards, etc. The advent of GST has taken away the erstwhile 15% service tax. Let’s check out the application of the indirect tax regime across the lending products individually.
How Would GST Impact Personal Loans in India?
Whenever one looks to fulfill the wishes of marriage and education, often the word that does the rounds is a personal loan. The loan can even be applied to fulfill instant cash needs to suffice medical treatment expenses. Even as the tax rate has increased, the impact of it can be seen on the processing fee, foreclosure charges, etc. It’s not going to impact the interest rate one bit.
Take an example of 5-lakh personal loan which is offered with a processing fee of say ₹10,000. Previously at 15% rate, the tax component would have been ₹1,500. Now with the 18% incidence, the tax has risen slightly to ₹1,800. The processing fee would now cost ₹11,800 as opposed to ₹11,500 in the pre-GST era.
How Much Will GST Impact Your Dream Home Purchase?
Even on a home loan, the impact of GST would be there on processing fee, foreclosure charges, etc. The home loan processing fee, for example, can be anywhere between 0.25%-1% of the loan amount plus GST. So, if you seek a home loan worth ₹60 lakhs, the processing fee could turn out to be anywhere between ₹15,000-60,000, over which 18% rate would apply. After the incidence of 18% GST New Rates, the processing fee would seem as ₹17,700-70,800 as opposed to ₹16,500-69,000 on home loans applied before July 1, 2018, when the GST made way to India.
How Much Will GST Cost You While Purchasing Your Favourite Car on a Loan?
A car loan comes with a processing fee of 1%-2% of the disbursed amount. On the processing fee, there will be 18% GST as opposed to 15% service tax earlier. Suppose you want to avail a car loan worth ₹7 lakhs, the processing fee inclusive of GST would appear as ₹8,260-16,520. Earlier, it would have been ₹8,050-16,100. So, the fee has got expensive very slightly.
How Would GST Impact Credit Cards?
Now, this is going to be one interesting read. Yes, 18% GST will be applicable, but only on the interest charged. Let me tell you the interest is charged on revolving credit only. If you pay off the dues in full on or before the due date, the interest won’t apply and so as the GST.
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