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GST On Personal Loan
Introduction
GST's "One Nation, One Tax, One Market" concept has been one
of the most notable tax changes. The goal of simplifying the
tax structure has had an effect on every area of the
economy, including banking and financial services.
Previously, the banking and financial sectors were subject
to a 15% service tax. However, with the advent of the GST,
this sector has now fallen into the 18% tax bracket.
Let's explore how the goods and services tax affects the
loan industry, particularly the personal loan section. A
personal loan is one of the most common types of credit
since it may be used for a variety of purposes. Furthermore,
save in rare situations, a personal loan does not require
collateral.
What is GST?
GST is an abbreviation for "Goods and Services Tax." It is
founded on the principle of "One Nation, One Tax." GST
eliminates the cascade effect, which is a tax on tax effect
on the sale of goods and services, lowering their cost.
In the year 2000, the GST was implemented. It took 17 long
years from then to now for the GST to go into force. The
Goods and Services Tax Act was passed by Parliament on March
29, 2017, and it went into effect on July 1, 2017. The GST
has had an impact on several businesses, including the
banking sector. The banking industry offers a wide range of
services to its customers. As a result, it is not surprising
that the adoption of the GST has had an impact on the
banking industry.
Why was the GST brought into effect for personal loans?
Personal loans were previously subject to a 15% service tax.
The service tax has been replaced by the 18% GST. Given the
3% tax rise, many consumers believe that obtaining a
personal loan is now more expensive than it was previously.
That, however, is not the case.
GST is not levied on loan repayments or interest payments.
It is instead collected on processing fees, prepayment
penalties, and other personal loan fees paid to the bank or
lender.
Because the majority of personal loan repayment consists of
interest and principal payments, the impact of GST on a
personal loan is insignificant.
| Bank fees for a personal loan of ₹ 5 Lakh | Amount payable to the bank | Fee payable when Service Tax is applied at 15% (pre-GST era) | Fee payable when GST is applied at 18% (GST era) | Impact of GST (GST minus Service Tax) |
|---|---|---|---|---|
| Processing fees of 1% of the loan amount | ₹ 5,000 | ₹ 750 | ₹ 900 | ₹ 150 |
| Prepayment fees of 2% of the outstanding principal amount | ₹ 10,000 | ₹ 1,500 | ₹ 1,800 | ₹ 300 |
If you intend to apply for a personal loan to satisfy your financial needs, you need to better grasp the implications of the GST.
Personal loans subject to GST
Banks typically charge a processing fee ranging from 1% to 2% of the loan amount. and a prepayment fee of 2% to 5%. The tax rate has risen from 15% to 18% (a 3% increase), although this has no effect on the EMI amount. The loan repayment is exempt from GST. It only applies to the services provided by the bank to the borrower in connection with the processing of the personal loan. GST has no effect on loan repayment or the interest rate on a personal loan.
How Does the Goods and Services Tax Affect Personal Loan Elements?
- Processing fee
- Prepayment closure fee
Banks typically charge 2%-5% as prepayment penalties on outstanding loans. So, if Rakesh has a loan of ₹7 lakh, the prepayment charges will be between ₹14,000 and ₹35,000. The service tax at the rate of 15% would have been between ₹2000 and $5250. However, with the implementation of GST, the service tax will rise to ₹2520-₹6300, representing a ₹420-₹1050 increase.
All banks often charge 1%-2% of the loan amount plus
service tax. Prior to the advent of the GST, service tax
was computed as a 15% surcharge on the processing fee.
However, with the implementation of GST, the service tax
assessed on the processing charge will be 18%.
Assume Rakesh takes out a personal loan of Rs. ₹5 lakh.
The processing charge, which is 1%-2% of the loan amount,
will be between ₹5,000 and ₹10,000. The service tax would
have been assessed at between ₹750 and ₹1500.
However, with the application of GST, the computed service
tax will be ₹900-₹1800, resulting in a ₹150-₹300 increase.
How Available is Capital Now? Personal Loan Help Reduce GST
Even though the cost of obtaining a personal loan has increased, the borrower bears the brunt of the cost increase. As a result, obtaining a quick personal loan online will always be a popular financial alternative.
Conclusion
The Goods and Services Tax (GST) has been regarded as one of the most significant taxation changes, simplifying the previous tax structures imposed on goods and services in the country. While many people are concerned about the impact on specific services, such as GST on personal loans, the amount to be paid is not excessive. Capital Now loans are much more reasonable, even after accounting for GST rates, due to their numerous benefits. To apply now, go to the Capital Now website or download the loan app.
FAQ's
How much increase will be there in service tax on prepayment charges?
All banks often charge 1%-2% of the loan amount plus service tax. Prior to the advent of the GST, service tax was computed as a 15% surcharge on the processing fee. However, with the implementation of GST, the service tax assessed on the processing charge will be 18%.
How do I calculate gst on a personal loan?
Personal loans were previously subject to a 15% service tax. The service tax has been replaced by the 18% GST. Given the 3% tax rise, many consumers believe that obtaining a personal loan is now more expensive than it was previously.
How to lower the gst charge on loans?
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 of a loan that comes with a lower processing fee or prepayment charges.
What is the effect of GST on prepayment?
All banks often charge 1%-2% of the loan amount plus service tax. Prior to the advent of the GST, service tax was computed as a 15% surcharge on the processing fee. However, with the implementation of GST, the service tax assessed on the processing charge will be 18%.
What factors affect personal loans?
1)CIBIL score,2)KYC Documents,3)Employment,4)Salary.
Does GST affect personal loan interest rate?
The loan repayment is exempt from GST. It only applies to the services provided by the bank to the borrower in connection with the processing of the personal loan. GST has no effect on loan repayment or the interest rate on a personal loan.
Need more information? You can always reach us at support@capitalnow.in