Why GST on Personal Loan

Last Updated : March 15, 2019, 4:09 p.m.

If we talk about GST, this in-direct tax has been levied by the Government on various Goods and Services. And, under the banking sector, a personal loan is one such product on which GST is applicable. The government collects the tax from various sources and the same has also been collected from the charges applicable on a personal loan. Talking about the charges, processing and foreclosure, these are the charges on which GST has been applied by the government, creating an impact on the same.

So, let’s just give you a better understanding of the same by explaining the impact of GST on personal loan charges.

Impact of GST on Processing Fee

In case of processing fee, earlier 15% service tax used to applicable on the same. But now the standard 18% GST rate is charged. Earlier, processing fee used to be 1%-2% of the loan amount+15% service tax across banks in India. So, suppose, if the loan amount is ₹9 lakhs, the processing fee could be ₹9,000-18,000. Service tax was expected to be ₹1,350-2,700. Adding all that, the processing fee ranges from ₹10,350-20,700 before GST.

But now with GST into effect, the processing fee would jump to ₹10,620-21,240.

Impact of GST on Foreclosure/Prepayment Charges

Similarly, the prepayment charges will also change now. In the pre-GST period, the prepayment carries a charge at 2%-5% of the outstanding loan +15% service tax. So, suppose, if the outstanding loan is ₹2 lakhs, the prepayment charge would be 4,000-10,000+15% service tax. The combined total will be ₹4,600-11,500. But as GST is rolled out now, the very same amount will go up to ₹4,720-11,800.

So, now you clearly know how the GST is impacting the personal loan. Though, one thing that needs to be mentioned here is the fact that the effect of tax rise is not pinching at all.