To calculate the GST on personal loans, the interest component is considered, which is calculated based on the loan amount and the applicable interest rate. The GST rate on personal loans is currently 18%, and it is calculated on the interest amount.
Before applying for a personal loan, it is crucial to check CIBIL score. Your credit score plays a crucial role in determining the interest rate and eligibility for the loan. If you have a high credit score, you may be eligible for a lower interest rate, which can reduce the GST amount you need to pay.
In summary, while calculating the GST on personal loans, the interest component is taken into account, and a higher credit score can help reduce the interest rate, thereby reducing the GST amount. Therefore, it is essential to maintain a good credit score to enjoy various benefits, including favorable GST calculations.
GST on Personal Loans
Since GST was introduced, financial organisations and banks have applied a service tax of 18% on all their services when you apply personal loan. Several ways of calculating the GST will affect your personal loan. A point to consider here is that it’s relatively inexpensive despite a GST rate on personal loans. And your EMI does not get affected by it.
What are the Effects of GST on Personal Loans?
Whenever you immediately need money for any reason, personal loans also come through to help you. And once your need is fulfilled, you can always pay it back later. The ways that GST or tax, in general, can impact your loan include the following:
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Processor charge
For each loan granted to you by financial institutions, a processing fee is charged alongside the personal loan rate. And you must pay this fee.
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Advance payment
If you consider paying your loan beforehand, your prepayment fees will have a GST of 18%. It only applies if you pay back your loan in full before your term ends. The fee is either the interest for some months or a percentage of the outstanding personal loan balance.
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EMI
Even though the personal loan cost has increased slightly, the price fluctuation will not impact you overall. Your EMI portion is left tax-free and will not directly affect the EMI of your personal loan. It is because formerly, the EMIs were exempt from service tax, and they remain to be so by GST as well.
How Can Personal Loan Rates be Reduced?
The amount of GST you pay on your loan is determined by the prepayment and processing fees. Hence, the simplest way to reduce your GST is to get a personal loan with a low prepayment penalty and processing charge. When you apply personal loan, you must compare your different loan offers to ensure that you get a lower GST on them. And it is also important that you focus on the personal loan rate that gets charged on your loan to ensure a balance between all your charges related to the loan.
Pros and Cons of GST on Loans
Since the GST taxation system was implemented, your loan’s cost has been reduced. Reducing the cost of a loan means low prepayment fees and processing costs. If the previous tax laws are considered, you are also exempt from many other taxes.
Due to the tax on personal loans, the net tax amount has risen by 3%, making loans more expensive.
How Does GST Affect Prepayment?
When GST affects your loan, your prepayment fees will fluctuate. Before GST, the prepayments were subjected to fees of some percentage along with the service tax. But overall, the prepayment fee increased after the implementation of GST.
Under the GST tax, the country’s tax structure has undergone significant modifications. As a result, you may be concerned about how the GST may affect your personal loan and the extra cost it will incur.
Conclusion
A personal loan is financial assistance you can use when you need it. Overall, even though GST on loans will lead to more cost, it is still efficient when considering its personal loan rates, which needs to be focused upon more. If you believe that the extra cost of GST is reasonable, you can go ahead with apply personal loan and make the most of the funds.