GST is not payable on penal charges that fall within CBIC Circular No. 245/02/2025-GST, dated 28th January, 2025. The circular clarifies the treatment of penal charges levied by regulated entities in compliance with RBI directions for breaches of loan terms. It treats these charges as consequences of contractual non-compliance rather than consideration for a service.
The clarification applies within its stated scope and does not mean that every charge associated with a missed payment is automatically exempt. The circular identifies exclusions, including credit cards, external commercial borrowings, trade credits and structured obligations covered by product-specific directions.
Read the charge description in your loan documents carefully. A penal charge and a separate service fee should not be treated as interchangeable.
Worked example: Vivek in Surat
Vivek is 44 and works as a salaried accounts head at a diamond trading firm in Surat. He earns Rs. 92,000 per month and has a CIBIL score of 772. He borrows Rs. 4 lakh to renovate his kitchen at an illustrative interest rate of 14% per annum. He compares two repayment tenures and separates the interest cost from the GST included in his processing fee.
EMI formula: EMI = P × R × (1 + R)^N ÷ [(1 + R)^N − 1]
P is the loan amount in rupees, R is the monthly interest rate expressed as a decimal, and N is the repayment tenure in months. For an annual interest rate of 14%, R is 14 ÷ 12 ÷ 100. The formula calculates equal monthly payments covering principal and interest. The interest component is higher in the earlier instalments and declines as the outstanding principal reduces. All figures below use the supplied illustration and are rounded to the nearest rupee.
| Tenure | Monthly EMI (Rs.) | Total interest (Rs.) | EMI as share of salary (%) |
|---|
| 36 months (3 years) | 13,671 | 92,158 | 14.9 |
| 48 months (4 years) | 10,931 | 1,24,668 | 11.9 |
Last updated: 16th October, 2026
The 48-month option reduces Vivek's monthly EMI by Rs. 2,740 but adds Rs. 32,510 in total interest. GST does not apply to the loan interest under the applicable exemption. His processing fee of up to Rs. 16,520 includes Rs. 2,520 in GST.
Vivek chooses the 36-month tenure in this illustration because the EMI stays below 15% of his monthly salary. He should still account for the processing fee and his existing financial commitments before accepting the offer.
What can delay approval? A CIBIL score below 650 or existing EMIs that take up a large share of your income can affect the lender's assessment. Inconsistent names or addresses across documents can delay verification. Multiple loan applications within a short period can also affect the assessment process.
Checking where GST applies on your loan? With a Bajaj Finance Personal Loan, you can borrow Rs. 40,000 to Rs. 75 lakh, subject to eligibility. Check your loan offer with your phone number and a one-time password (OTP) → apply online in about 5 minutes → receive funds within 24 hours* of approval.
