About Goods and Service Tax (GST)
Goods and Service Tax(GST) has been hailed as one of the most significant reforms on the taxation front which has simplified the existing multiple tax structures being imposed on goods and services in the country.
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.
GST on Personal Loans
Before the implementation of GST, all service rendered in the domain of Banking and Financial Services was charged Service Tax at the rate of 15%. This meant that all chargeable services from a bank were levied a service tax.
With the implementation of GST, all services rendered by banks and financial institutions came under the ambit of this regulation and were taxed in the GST slab of 18%.
So there has been an increase in the taxation rate on the services rendered by the financial sector by 3%.
Does the Implementation of GST Increase your Personal Loan Interest Rate?
By now you must have understood that there has been an increase in the taxation rate on the financial services rendered due to the implementation of GST.
And the main question going on in the minds of many is that does it increase the interest rate on your personal loan? A 3% increase in the interest rate could be a huge burden on your finances.
Here, it is important to understand that the GST is levied on the service rendered by the banking and the financial sector. However, interest paid on a personal loan is money paid 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.
What Components of a Personal Loan are Affected by the GST?
Any service rendered by a bank or a financial institution comes under the purview of GST and is taxed at 18% slab.
The various fees and charges on which GST is levied are
- Processing Fees:
Processing of a loan is a service rendered by the bank/financial institution. Therefore, GST is levied on the amount of processing fee charged.
For Example: If Rs 50000 is availed as a personal loan and the processing fee charged is 4% of the loan amount. The processing fee charged would be Rs 2000 and 18% GST would be charged on Rs 2000 bringing the final figure to Rs 2360.
- PrePayment or Pre-Closure Fees:
Any time you prepay or pre-close a loan, the bank or the financial institution provides you service in helping you close your loan. Hence, GST is liable to be charged on prepayment fees/penalty on a loan.
For Example: If the outstanding amount on a personal loan is Rs 50000 and the bank charges 3% as Prepayment charges. Then the amount to be paid as prepayment fee would be Rs 1500 and with 18% GST, the figure would come up to Rs 1770.
How can you Save up on the GST Amount Charged on Personal Loans?
The GST amount paid on a personal loan is dependent on the amount charged as a processing fee and prepayment charges. Therefore, it is good to do a comparison of the charges applicable to the loan before applying for a loan.
Ideally lower processing fees and other charges like prepayment fees will lower the GST amount paid by you on your personal loan. However, at the same time, it is good to pay attention to the interest rate charged on the loan and achieve an ideal balance between the two.
How can availing a Money View Personal Loan help you save GST?
Money View loans are instant online personal loans that are made available even to those with low credit scores.
The interest rates and other charges on the loan are low and highly competitive and can help you save on the GST amount. Read below details to know more:
- The interest charges on Money View Personal Loans start from 1.33% per month.
- The processing fees can range between 2.5% to 6.0% of the loan amount depending on various factors. As our processing fees are on the lower ranges you stand to pay a lesser amount of GST.
- There are no prepayment charges on Money View personal loans, the only condition being you should have at least paid a minimum of 3 EMIs. So you gain on this count by availing personal loans from Money View as our prepayments are not chargeable, hence there is no incidence of GST payment from your end.