Understand how GST on two-wheelers in India impacts your overall loan costs. Check its impact on EMI amounts, interest rates, and overall financing expenses when buying your motorcycle.
When purchasing a two-wheeler on loan, understanding the impact of Goods and Services Tax (GST) is crucial. While GST on two-wheelers does not apply directly to the loan interest, it influences the overall cost of the vehicle and related services.
The tax on insurance premiums, processing fees, and other associated charges can affect the effective loan burden. Knowing how GST on two-wheelers in India plays a role helps you make informed decisions and manage your two-wheeler loan more efficiently.
Goods and Services Tax (GST) was introduced to unify all indirect taxes such as VAT, excise duty, and service tax into a single, streamlined tax system. It establishes a uniform tax rate across the country for the supply of goods and services.
GST on two-wheelers in India is currently 28%, which is applied to the ex-showroom price of the vehicle. This significantly increases the upfront cost of purchasing a two-wheeler.
When securing a loan to facilitate your purchase, consider that a higher GST rate on bikes directly impacts the total loan amount required. GST is also levied on associated services such as loan processing fees and insurance premiums, thereby increasing the overall cost of borrowing.
While GST does not apply to loan interest, its impact on the principal and related charges makes it a key factor in the overall loan burden. Understanding this connection helps you plan your finances more accurately.
GST increases the price of two-wheelers. When the price rises, the loan amount you need to borrow also increases. A larger loan results in higher EMIs and greater total repayment.
Consider the following example:
A bike priced at ₹90,000 without GST would cost about ₹1,15,000 with GST and other charges. Taking a loan for 80% of this amount means your loan would be around ₹92,000.
Without GST, your loan would have been only ₹72,000. Due to GST, you end up borrowing ₹20,000 more, which leads to higher EMIs and increased total interest.
The GST rate on bikes does not directly alter bike loan interest rates, but it can influence how lenders determine interest for borrowers.
Higher Loan Amounts
GST on two-wheelers increases the vehicle’s purchase price, resulting in higher loan amounts. Larger loans present greater risk for lenders, particularly if you have average credit scores. This may lead to slightly higher interest rates to compensate for the increased risk.
Affordability Issues
Rising bike prices due to GST make purchasing more difficult. To improve affordability, lenders may offer special loan plans such as longer repayment tenures or lower EMIs. These adjustments can impact how interest is applied.
When you take a bike loan, GST impacts not only the bike’s price but also other related services. These additional costs increase the total amount you spend. Here is how:
Insurance Premiums
You need to purchase insurance for your bike, which carries an 18% GST. This raises the insurance cost, so you need to factor this into your budget.
Loan Processing Fees
Banks or lenders charge a processing fee when you apply for a bike loan. GST applies to this fee as well, increasing your upfront cost at the time of loan application. GST raises the overall cost of purchasing a two-wheeler by adding taxes and related charges.
This results in higher loan amounts and monthly EMIs, which can impact your budget.
Although GST does not change the loan interest rate, it makes your loan more expensive by increasing the overall cost of the bike and related services.
Whether you are buying your first bike or upgrading to a new one, Bajaj Markets provides access to trusted lenders, ensuring you get excellent loan terms. Compare interest rates from multiple lenders available on the platform and make a well-informed decision.
Frequently Asked Questions
What is the GST rate for a two-wheeler loan?
The GST rate on bikes in India is 28%, which impacts the total vehicle price and the loan amount. GST is not charged on the loan interest or the repayments themselves.
Is there a tax exemption on two-wheeler loans?
Tax exemptions on two-wheeler loans apply only when the vehicle is used for business purposes. In such cases, the expenses related to the loan may be claimed as business deductions under applicable tax laws.
Does GST affect EMI for bike loans?
GST does not apply to the EMI payments. However, banks may charge GST on processing fees and other service charges.
Does GST directly change interest rates on bike loans?
GST does not directly influence the interest rates on bike loans. However, GST on processing fees and services increases the overall cost of the loan.
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