GST on Credit Card & Other Lending Products Explained

The history of Goods and Services Tax (GST) is more than two years old when Prime Minister Narendra Modi launched this indirect tax reform on the wee hours of July 1, 2017. Ever since the launch, the GST has been a matter of debate amongst the public and experts. While some view it as a remarkable step that could revolutionize the economy in years to come, others complain of the structural set up of the tax reform. The debate has even gone on to the effects of GST on credit card and loans. So, if you are a prospective credit card shopper or a loan customer, you must be aware of the impact of GST on these products. The article will make you aware of the same.  

GST on Credit Cards

Credit cards are increasingly used to earn rewards and cashback on spends. But, in a bid to rack those, you can end up increasing the overall due, forcing you to pay in parts. This will lead to interest on the unpaid balance. On the overall amount, the GST is charged at 18%. The same GST rate is chargeable on joining & annual fees, late payment amount, etc.

How Much the Impact GST Has on a Personal Loan?

Personal loans are one of the most popular lending products as they can be availed for several purposes such as marriage, education, medical emergency, purchase of any consumer durable, etc. As far as the impact of GST is concerned, there’s nothing on the interest rate front. However, processing fees, prepayment charges and late payment penalty can have the effect of GST, which is chargeable at 18%.

Effect of GST on Home Loans

Considering the hefty price of homes, one often buys the same with the help of loans. Home loans are often granted on a floating rate basis, which means the rate of interest will keep on changing with the change in market rates. Like personal loans, the GST won’t have a bearing on the interest rate but will have on processing fees and late payment. The GST will be charged at 18%.  Floating rate loans don’t have prepayment charges, so there won’t be any GST on the same. 

How Much is the Effect of GST on Car Loans?

It’s a proud moment when you buy the car and roam around with comfort, much unlike the public transport where you have to deal with increasing traffic. But these vehicles are bought mainly on loans. And, with a car loan, comes the interest rate, processing fees, etc. Like in the previous loans, there won’t be any GST on the interest rate. But the processing fee, late payment fine, prepayment charges will all carry 18% GST tax rate. 

Is GST a Point to Ponder?

No, not at all. Whatever many may say on social media and other mediums, the fact remains is that the cost for the customer has not moved much with the introduction of the GST. Previously, service tax at 15% used to get charged on credit cards and other lending products. Now, 18% GST on credit card payment and other loans is applicable. The 3% rise won’t be much in terms of amount. So, if a personal loan, before the launch of GST, had a processing fee of ₹10,000 plus a service tax of 15%. The total processing fee was ₹11,500 (inclusive of service tax). Whereas, with 18% GST, the same will be ₹11,800, an increase of just ₹300. However, the GST can make you pay more on credit cards if you continue to pay the due partially.