Menu Hamburger
Menu Hamburger

Download our app

Google Play App Store
Home Discover Journals What is the Impact of GST on a Personal Loan?

What is the Impact of GST on a Personal Loan?

By Finserv MARKETS - Mar 4,2019
Views Icon200 Views 0 0 Comments

Impact of GST on Personal Loans

The Goods and Services Tax (GST) is the biggest reform in the tax regime of the country. It was introduced with an aim to simplify the tax structure in India and to ensure that there is one tax for the entire nation. The implementation of GST has had an impact on different industries across the country. With regards to the Banking and Financial Sector, earlier a 15% service tax was charged. This has s been replaced with an 18% GST slab. Here is how the impact of GST onl loans will affect you in the long run.

The Impact of GST on Personal Loan

With the implementation of GST, the Service Tax levied on a personal loan has increased to 18% from an earlier 15% rate. Having said that, this surely does not impact your EMI payouts but definitely affects the various charges that are levied. Some of these charges on include processing fees, prepayment charges, financial fitness report charges etc.  Availing a personal loan will now cost you 3% more than what it used to before GST implementation. However there are indirect tax benefit on personal loan.

Increase in Prepayment Charges

Most banks tend to charge around 2% to 5% as loan prepayment charges. With the implementation of GST, the service tax on loan prepayment charges has increased by 3%. An example will help you understand it better. Jay has a loan of INR 5 lakh and the prepayment charges are between 2% to 5%, which comes to around INR 10,000 to INR 25,000. With the service rate of 15%, the tax on the same would be around INR 1,500 to INR 3,750. However, with the implementation of GST, the service tax will reach INR 1,800 to INR 4,500. This is an increase of INR 300 to INR 750. Some of the leading non-banking financial institutions like Finserv MARKETS have zero prepayment charges which can help you bring down your cost. Click here to explore.

Increase in processing fees

Whenever you apply for a personal loan, the financial institution will charge a processing fee of 1 to 2% on the loan in addition to the service tax. Before GST implementation, a 15% service tax was applicable on processing fee which, is now charged at 18%. This implies that there is a 3% increase in cost of availing a loan. Let us take an example here. Simran has applied for a personal loan of INR 10 lakh with a processing fee ranging between 1% to 2% of the loan amount or INR 10,000 – INR 20,000. The service tax levied would be range between INR 1,500 – INR 3,000. The same amount will now be INR 1,800 – INR 3,600 post implementation of GST.

Although the cost of acquiring a loan has increased, this burden is not applicable on your regular EMI payouts as they fall outside the purview of GST and Service Tax. This is primarily the reason why a personal loan still remains a preferred form of borrowing. Hence, when you apply for a loan, you have to consider the impact of GST over the total loan amount.

With Finserv MARKETS, applying for a Personal Loan is easy, convenient and completely hassle-free. What’s more? The entire process is online, transparent and can be processed right from the comfort of your home.

“Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!”

Comments

Connect with Us
Connect with Us

Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522