GST on Personal Loan

With the implementation of GST, all services rendered by banks and financial institutions are being charged a service Tax of 18%.

If you are planning to avail a personal loan you may have wondered what the GST on personal loan is. Is there an expensive GST rate on personal loans? Has there been a significant increase?

The good news is that while there has been a slight rise in the prices associated with personal loans, it will not impact your EMIs significantly. Read on to know more.

Impact of GST Rate on Personal Loan

The main question in everyone’s mind is - does the new GST rate increase the interest rate on your personal loan?

Customers should note that the GST is levied on the service rendered by the banking and the financial sector. However, interest paid on a personal loan is done at a predetermined rate for the utilization of the money borrowed and is not a service rendered by the banking and financial sector.

Therefore GST is not levied on the interest charged on personal loans. However, there are certain other components of a personal loan that are impacted by GST.

What Components of a Personal Loan are Affected by the GST?

GST on personal loan is based on the following components -

  • Processing Fee Processing of a loan is a service rendered by the bank/financial institution. Therefore, GST is levied based on the processing fee charged. The amount charged as GST will vary based on the actual processing fee. For eg.,if Rs 50,000 is availed as a personal loan and the processing fee charged is 4% of the loan amount. The processing fee charged would be Rs 2,000 and 18% GST would be charged on Rs 2.000 bringing the final figure to Rs 2,360.
  • Prepayment or Pre-Closure Fees Any time you prepay or pre-close a loan, the bank or the financial institution provides you with a service in helping you close your loan. Hence, GST is liable to be charged on prepayment fees/penalty on a loan. For eg.,for a personal loan of Rs 50,000, if the bank charges 3% prepayment charge, then the amount to be paid as prepayment fee would be Rs ,1500 and with 18% GST, the figure would come up to Rs 1,770.

As you can see, the amount is not extremely high but if you are still concerned, there are ways to cut down on the amount paid as GST on personal loan.

How You Save Up On the GST Charged on Personal Loans

The GST amount paid on a personal loan is dependent on the processing and prepayment charges. Therefore, the best way to cut down on GST is to avail a loan that comes with lower processing fee or prepayment charges. Comparing various loan offerings will be beneficial.

However, at the same time, it is also good to pay attention to the interest rate charged on the loan and essentially strike a balance between all the fees and charges imposed on a personal loan.

How Availing a Money View Personal Loan Help Reduce GST

One of the most popular personal loans in the country, Money View offers loans at affordable rates and with minimal documentation.

The interest rates and other charges on the loan are low and highly competitive and can help you save on the GST amount as given below -

  • The interest charges on Money View Personal Loans start at just 1.33% per month
  • The processing fees start at an affordable 2% of the loan amount. As our processing fees are on the lower side, you stand to pay lower GST.
  • While there are no prepayment charges for Money View personal loans, you can only foreclose a loan after paying a minimum of 3 EMIs. Since there is no prepayment charge, there would be no GST added to the same.

Note: The regulation for GST came into being on 01 July 2017 and since then all goods and services except petroleum products, alcoholic drinks, and electricity are charged at a uniform rate all across India.

In Conclusion

Goods and Service Tax(GST) has been hailed as one of the most significant reforms on the taxation front and has simplified the existing tax structures being imposed on goods and services in the country. While most are naturally worried about the impact of this on certain services such as GST on personal loans, the amount to be paid is not extravagant.

Due to its many advantages, Money View loans are much more affordable even after factoring in GST rates. Visit the Money View website or download the loan app to apply today.