GST is the replacement of indirect taxes such as VAT, service tax, entertainment tax, etc. The service charges on loans were earlier 15% and now that Goods and Service Tax (GST) is here, it has replaced or increased it. But, many people think that it has made loans a lot costlier than before.
The truth, however, is that there is a minimal change. As you will read this article, you would know the reality with a proper example of pre and post GST payments on different loans. We have shared the difference in payments from a customer’s end and under which GST slab in India do loans come.
GST Slab in India on Loans
The most common loan a person takes is a personal loan. It has the maximum demand and supplies out of all other types of loans available. Since unsecured personal loans give the option to use money without providing any security, you can use it for travel, wedding, medical expenses, credit card payments, etc. There is a fuss that GST would increase your expenses. As mentioned above, the processing fee on the loan ranges from one loan to another. In general, the processing fee ranges from 0.50% to 2.50% of the loan amount. There is an additional service tax which was earlier 15% of the processing fee amount. Post GST, it has increased to 18%. Let us see how GST has affected the payments on these two loans.
Other than the EMI (regular payment for the whole tenure), you pay a processing fee (one-time payment) on a loan. Since the tax applicable to loans has come under GST tax list of 18 percent.
If the disbursal amount for your personal loan is ₹2,00,000 the difference between the processing fee is as follows:
Before GST- Processing fee (1% of the loan amount) + Service Tax (15% of the processing fee) = ₹2,000 + 300 = ₹2,300
After GST- Processing fee (1% of the loan amount) + GST (18% of the processing fee) = ₹2,000 + 360 = ₹2,360
Another type of loan which a person needs or takes in a lifetime is a housing loan or home loan. If the disbursal amount for your home loan is ₹20,00,000 the difference between the processing fee is as follows:
Before GST- Processing fee (1% of the loan amount) + Service Tax (15% of the processing fee) = ₹20,000 + 3000 = ₹20,300
After GST- Processing fee (1% of the loan amount) + GST (18% of the processing fee) = ₹20,000 + 3600 = ₹20,360
With the above details, you can see that there is hardly any increase in the loan payment. If a loan borrower can pay ₹20,300 (for instance), he/she can easily manage to pay ₹60 extra. So, it is quite clear that GST slab in India has not affected loans much and hence you can continue using the finance facility without any tension that you have to pay more now.