All goods and services sold in India are subject to taxation. Loans of all kinds, including Personal Loans, are no different because loans are a service that borrowers avail of from banks and lending institutions.
With the introduction of GST, there has been a curiosity among borrowers about its impact on changes associated with loans. In this blog, we will address these concerns, providing clarity on the impact of GST on a Personal Loan as well as on the overall lending landscape. Read on to know more!
The Goods and Services Tax, also known as GST, is a uniform taxation system in India that applies to all kinds of goods (like consumer durables) and services (like loans). It aims to reduce the overall tax burden on consumers with a single levied tax instead of multiple taxes.
The GST is levied on almost every form of loan. For example, if you opt for an EMI option through your credit card when you purchase a refrigerator, you will need to pay GST, which is added to your monthly instalments. Similarly, if you avail yourself of a loan, you will be required to pay GST on it as well.
The GST is collected by the lender and then passed on to the government. As a borrower, you will not have to undergo any other formalities apart from paying the GST to your lender. This is why GST is called an indirect tax, which is different from a direct tax, such as income tax.
The following table highlights the differences witnessed in the lending sector before GST and after GST.
Parameters
Before GST
After GST
Features, Interest Rates, and Benefits
Depending on the lender
No changes observed
Equated Monthly Payments (EMIs)
Depending on the loan amount and tenure
No changes observed
Processing Fees
Service tax of 15%
Personal Loan GST rate for processing fee is 15%
Eligibility Criteria
Depending on the type of loan and lender
No changes observed
Documents Required
No GST certificate
GST certificate required for self-employed individuals who wish to avail of a Business Loan
When deciding on a lender for a Personal Loan, the interest rate plays a crucial role. The impact of GST on loan interest rates is minimal. It does not influence the instalments on your loans.
In contrast to loan prepayment and processing, interest is not considered a service provided by lenders to borrowers. It is an amount paid at a fixed rate or floating rate as applicable on the loan. Hence, no GST is imposed on the EMI payment for a loan, offering respite from the effects of GST on interest on loans.
The following highlights the pros and cons of GST on loans:
To save GST rates on loans, follow these tips:
Before applying for a loan, you need to be aware of the basic eligibility criteria that must be met:
Your age should be at least 22 years at the time of borrowing and less than 58 years at the time of loan maturity. These requirements have been put in place to ensure you are capable of repaying the loan on time and have a regular source of income until the loan repayment period is complete.
If you’re borrowing from an Indian lender, then you need to be an Indian citizen as per lending regulations.
You must have full-time employment. This requirement exists to ensure that you have a regular source of income to repay the loan.
You must have a monthly income of at least Rs. 30,000. This ensures that you can afford to pay the loan EMIs without financial difficulty.
You must have a total work experience of at least 1 year and be in current employment for at least 1 month.
The following is a list of documents you need to submit when applying for a loan:
PAN card, Aadhaar card, driving licence, Voter ID card, etc.
Passport, utility bills, rent agreement, etc.
In addition to the above, you need to submit the following documents:
Here are the steps you need to follow to apply for a Personal Loan online:
Step 1: Click the ‘Apply Now’ button to fill out the application form.
Step 2: Provide your date of birth, PAN card details, monthly income, and residential information.
Step 3: Upload the necessary documents and click on the ‘Submit’ button.
The impact of GST on a Personal Loan and other loans can be witnessed in terms of higher processing fees and an increase in the overall cost of borrowing. Hence, you must compare different lenders and their interest rates to select a loan that best meets your specific financial needs.
Only self-employed individuals seeking a Personal Loan for business purposes must submit a GST certificate.
No, GST has no direct impact on the EMI amount. While the overall cost of your loan may increase, it is essential to note that any changes are not reflected in the EMI payments.
Most loans come with a processing fee of up to 2% of the loan amount plus taxes.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply
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