What is GST and How Does It Impact a Personal Loan?

Updated on: 17 Jan 2024 // 4 min read // Personal Loans
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The One Nation, One Tax concept of GST (Goods and Service Tax) is a revolutionary one. It can transform the entire taxation structure on the country. GST affects goods and all kinds of services. The name “Goods and Services Tax” signifies that all sorts of products and services come under GST.

The banking sector provides many services that were taxed at around 15% in the previous Service Tax regime. The implementation of GST has resulted in the enhancement of the service tax from the existing 15% to 18%. Therefore, it affects all services of the bank wherever there is a tax component.

BankInterest RateTenureEMI (Per lakhs)Disbursed
HDFC Personal Loan10.75%5 YearsRs. 2,162Instant Disbursed only for HDFC Customer
ICICI Personal Loan11.25%5 YearsRs. 2,1493 to 4 days
SBI Personal Loan9.60%5 YearsRs. 2,1055 to 7 days
PNB Personal Loan8.95%5 YearsRs. 2,0735 to 7 days
Bajaj Finserv Personal Loan13.50%5 YearsRs. 2,30124 Hours
Tata Capital Personal Loan11.99%5 YearsRs. 2,2245 to 7 days
Indiabulls Personal Loan13.99%5 YearsRs. 2,32624 Hours
Citibank Personal Loan9.99%5 YearsRs. 2,1245 to 7 days
Yes Bank Personal Loan10.75%5 YearsRs. 2,1625 to 7 days

If you are planning to apply for a personal loan to cater to any of your financial needs, let us look at how GST impacts the Personal Loan deals.

Personal Loan and GST

Personal Loans are the easiest of loans requiring the minimum of documentation. The eligibility criteria are also straightforward. There is no need to maintain collateral. Hence, there is no need to incur expenses like the creation of charge and other costs that attract service tax.

The implementation of GST does not have much effect on the Personal Loans because the only area of impact is the processing fee structure. In the previous regime, the service tax on processing fee was 15%. With the implementation of GST, the tax burden on the service charges has enhanced to 18%. It implies that there is an increase of 3% on the Personal Loan processing fees.

At present banks charge around 2% of the loan amount as processing fees. Hence for a loan amount of 5 Lakhs, you incur 10,000 as processing fees. Under the service tax regime, you used to incur a service tax of 1,500. Now, with the implementation of GST, the rates have gone up to 18%. Hence, you incur an amount of 1,800 as service tax. Therefore, you can see that it affects your total outlay by 300.

Does GST Impact Personal Loan Interest Rates?

The GST does not have any effect on the interest charged on your Personal Loans and all other loans as well. Hence, there is no effect on the EMI (Equated Monthly Instalment). However, it affects other charges such as prepayment penalties, late payment fees, foreclosure charges, and so on.

The prepayment penalties are around 2% to 5% of the payment amount. There is a GST component on this prepayment. Similarly, the foreclosure amount attracts penalties in the range of 2% to 5%. These charges attract GST as well. Hence, the implementation of GST affects the Personal Loans in these aspects. So, if you wish to pre-pay or foreclose your Personal Loan, make sure you are aware of the charges involved for the same.

How Do You Apply for Personal Loans?

You can easily get Personal Loans today. Banks have various products for different categories of applicants. You can browse MyMoneyMantra, compare multiple Personal Loan deals and apply online.

If you meet the eligibility criteria, lenders are quick in sanctioning Personal Loans. Usually, it does not take more than 48 to 72 hours for the disbursement to take place.

How Do You Save on the GST Amount?

You can compare the charges of various banks online. Some banks have low processing fees, but stringent prepayment and foreclosure charges whereas others have comparatively lower penalties on late payment of EMIs and so on. The GST affects these areas of your Personal Loans. Hence, you can compare and arrive at the right figure of GST.

You do not have to furnish collateral for your Personal Loans. Hence, you save on GST on charges connected with legal verification of documents, evaluation of security, the creation of a mortgage, and so on. Thus, one can state that the impact of GST on the Personal Loans is minimal.

A Quick Recap

  • GST is in force since 01.07.2017. The service tax regime was prevalent before the implementation of GST.
  • The service tax applicable to services provided by banks was 15%.
  • The introduction of GST has seen an enhancement in the tax amount to 18%.Therefore there is an increased outlay of 3% of the processing fees, prepayment and foreclosure charges, and so on.
  • The EMI does not change because there is no effect of GST on the interest charged by the banks.

For further clarification, you may speak with our Personal Loan Specialists.