GST on Personal loans – Processing Fees, Documents, EMI

A personal loan is an unsecured loan that can be availed for meeting various urgent fund requirements including medical expenses, travel, education, home care, and the like. As it can be availed easily online with basic eligibility criteria, personal loans have become a popular form for the masses. However, a borrower needs to be aware of the various taxes and charges on a personal loan like GST. 
 

What is GST?

 
The Government of India introduced the Goods and Services Tax (GST) – the country’s comprehensive tax reform – to simplify India’s tax structure by going in for one common tax system. Most industries fall under the purview of GST including the Banking and Financial Sectors. When introduced, the GST rate for the Banking and Financial sector was at 15%, which got increased to the current 18% GST slab. Being a charge on services, GST impacts personal loans.

GST impact on Personal Loans

Every borrower who avails personal loan has to pay GST charges at the existing rate of 18%. This GST charge applicable is in addition to the other personal loan charges of the lender. GST impacts other loan charges as seen below.
 

GST on Processing Fees, Documents & EMI

Lenders charge a processing fee for a loan granted to borrowers. This fee relates to the charge for the processing of a loan application, including a personal loan application. Normally, a processing fee is charged between 2.5% - 3.5% of the loan amount. GST at 18% is chargeable on the personal loan processing fees to be paid by a borrower.
 
GST is also applicable to the loan account statement charges. Likewise, it is also applicable to the foreclosure charges, i.e., prepayment charges for closing personal loans before maturity,
 
However, GST does not impact your monthly loan repayments like EMIs. GST does not directly impact personal loan EMIs as personal loan EMI did not attract service tax before GST implementation, as such, it does not attract GST now. So, a borrower’s personal loan EMI remains unchanged with GST’s impact on the personal loan.
 
A borrower who is self-employed and has a business loan as a part of the personal loan has to submit a copy of the GST certificate for documentation purposes.
 
Thus, it can be seen that GST levied on a personal loan impacts different aspects of a personal loan differently and may not impact all elements of a personal loan.
 
To know more about the impact of GST on a personal loan, check out credible personal loan apps like Hero FinCorp. It is a fully digitized, user-friendly online loan platform that provides an instant personal loan. You can easily avail of a personal loan of between Rs.50,000 and Rs.3 lakhs at an attractive interest rate starting at 11% per annum. It is an automated loan application with paperless KYC verification, and it provides its borrowers a seamless loan experience. On fulfilment of the basic eligibility criteria, you get the loan credited directly to your bank account within a business day.