Everything You Need to Know About GST on Loans

GST, or Goods and Services Tax, is an indirect tax applied on the supply of goods and services in India. GST was introduced on 1st July 2017 and replaced a number of indirect taxes like VAT, Service Tax, and Central Excise Duty. This tax structure has had a significant impact on almost all sectors, including loans. In this article, we will discuss how GST affects business loans and what you need to know about it.

GST Business Loan

Any business loan that you avail of will be subject to GST. The interest rate on loans will be subject to GST at a rate of 18%. It is important to note that this interest rate is not included in the loan amount and will need to be paid separately.

For example, if you take out a loan of Rs. 5 Lakh, with a 15% interest rate and a repayment period of 3 years, you will need to pay a total of Rs. 5,97,742 as interest (including GST) over the repayment period. This amount includes a GST of Rs. 84,737.

In most cases, the bank or financial institution providing the loan will add the GST amount to the EMI (Equated Monthly Installment) amount. This means that when you make your monthly payments towards the loan, you will be paying the principal amount, the interest charged, and the GST amount. Being aware of this can help you plan your finances better and avoid any surprise expenses later on.

GST Calculator

Calculating the GST amount on your loan can be a bit complicated if you are not familiar with the calculations involved. However, there are several GST calculators available online that can help you calculate the GST on your loan with ease.

All you need to do is enter the loan amount, interest rate, and repayment period into the calculator, and it will provide you with the total GST amount that you will need to pay over the repayment period. Some calculators even provide you with a detailed breakdown of the GST amount that you will need to pay each month.

Using a GST calculator can be useful if you want to compare loan offers from different banks or financial institutions. By knowing the GST amount on each loan offer, you can make an informed decision about which offer suits your needs the best.

GST on Secured and Unsecured Loans

Secured loans like home loans, car loans, and business loans that require collateral or security will be subject to GST. The interest rate on these loans will be subject to GST at a rate of 18%.

Unsecured loans like personal loans and credit card loans, which do not require any collateral, are exempt from GST. However, the interest rate on these loans may be higher due to the higher risks involved for the bank or financial institution.

GST on Loan Processing Fees

In addition to the interest charged on loans, banks and financial institutions may also charge a processing fee. This fee is charge for the services provide by the bank or financial institution in processing and approving the loan.

GST is applicable on the processing fee charged by banks and financial institutions. The current rate of GST on loan processing fees is 18%. This means that if the bank or financial institution charges a processing fee of Rs. 5,000, you will need to pay an additional GST of Rs. 900.

Conclusion

In conclusion, GST has a significant impact on loans and is applicable to both secured and unsecured loans. Before availing of a loan, it is important to understand the GST implications and calculate the GST amount that you will need to pay over the repayment period.

Using a GST calculator can help you calculate the Goods and Services Tax amount on different loan offers and make an informed decision about which offer suits your needs the best. Being aware of the GST amount on your loan can also help you plan your finances better and avoid any surprise expenses later on.

In addition, it is important to note that Goods and servies tax is applicable on the processing fees charged by banks. And financial institutions. This means that you will need to pay an additional GST amount on top of the processing fee charged.

Therefore, before applying for a loan, it is recommend that you do your research. Compare loan offers, and calculate the total cost of the loan including the GST amount. This way, you can make a well-informed decision and plan your finances accordingly.

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