What is the impact of GST on personal loans?
The Government of India implemented GST (Goods and Service Tax) on 1 July 2017. This regulation has affected all goods and services sold or offered in India. Personal loans are also part of this list. As they are extremely popular and you may consider applying for one for planned or urgent requirements, know-how GST impacts your borrowing experience.
How can I avoid paying GST on a personal loan?
It is essential to understand that GST on loan is not applicable, as they involve lending between individuals. GST is levied on goods and services, not on financial transactions like loans. Ensure you're dealing with genuine lenders, follow legal procedures, and consult a financial advisor for more guidance.
Components of personal loan before and after implementing GST
|
Before implementation |
After implementation |
Features, interest rates and EMIs |
Dependent on the lender you opt for |
No change |
Processing fees |
Service tax of 15% on processing fees |
GST of 15% on processing fees |
Eligibility criteria |
Dependent on the lender you opt for |
No change |
Documentation required |
No GST certificate |
GST certificate required (for self-employed borrowers availing a business loan, a type of personal loan) |
Pros and cons of GST on personal loans
Pros
- Bajaj Finserv levies nominal processing fees. Therefore, even with GST, your outgo remains minimal
- Post GST, borrowers only have to pay one tax instead of multiple taxes
- You only have to pay GST once
Cons
- GST has increased the subsequent tax payable by 3%, thereby increasing the cost of borrowing marginally
Personal loan components affected by GST
The following personal loan interest attracts tax when you borrow from Bajaj Finance Limited.
- Bounce charges
- Processing fees
- Foreclosure charges
- Penal interest
- Loan account statement charges
- Charges on outstation collection
- Part-prepayment charges
If you’re keen on making a part-prepayment, for instance, use the Bajaj Finserv Part Pre-Payment Calculator beforehand, as it includes the applicable GST.
To plan repayment, on the whole, use the Bajaj Finserv Personal Loan EMI Calculator before applying for a loan, and ensure that your repayment journey is smooth and hassle-free.
Frequently asked questions
Personal loans are exempt from GST as they are not considered a supply of goods or services under GST law.
GST is not applicable on loan EMIs as they are considered repayments of principal amount and interest, not subject to GST.
Interest on loans, including personal loans, is exempt from GST.
Loans such as education loans and home loans may qualify for tax benefits under specific sections of the Income Tax Act, making them tax-free.
