Finally after the much-awaited launch of GST, many people have started bothering about the post effects of the same. Yes, how it’s gonna impact the economy? What effect it will have on a common man’s life? And, among those questions, one common query is GST impact on home loan.That’s right! Many people in the country have their home loan running, thus more curiosity is there for the same. So, let’s start from the beginning and give you the sneak-peek of the topic in the article below…
If we talk about the current context, the loan market has been constantly abuzz with the news of interest rates falling apart, grabbing the attention of many. However, one thing that needs to be mentioned here is the fact that the reducing rates have definitely widen the prospects of loan seekers, allowing them to grab the best deal at attractive rates. But, as soon as Goods and Services Tax came into effect, one big announcement in GST on home loan had shocked everyone. Well, the services tax, which was earlier used to 15% will be now replaced with a standard 18% GST. Let’s just simply the same for you.
If you have already availed a loan, you must have aware with the fact that while availing the credit a borrower earlier used to pay a processing fee of 0.5%-1% of the loan amount+15% service tax. But now, the same structure has been revised to 0.5%-1% of the loan amount+18% GST.
Not only this, the prepayment charges have been also revised to 2%-3% of the principal outstanding+18% GST, which was earlier used to be 15%. So, if we look at the bigger picture, you can say a marginal hike in both processing fee and prepayment charges is there on home loan post GST. Hence, the borrowers need not to bother as it will not take much of a toll on their pocket. Don’t panic, let’s take the help from an example below and have a detailed discussion on the same.
Marginal Hike in Processing Fee:
Suppose, Raman Sharma, a 30 years-old, Sales Manager by profession is looking to avail a home loan of ₹20 Lakh. Now on that amount, he needs to pay a processing fee of 0.5%-1% of the loan amount+18% GST, which means he needs to pay a total sum of ₹11,800- ₹23,600 to the lender. However, if we look at the pre GST scenario, the same would be ₹11,500-₹23,000. So, if you compare both the scenario, you can clearly see a slighly hike in home loan processing is there, that the borrowers need to pay now.
Slightly Jump in Prepayment Charges:
Talking about the prepayment charges, now if a borrower wants to pre-close his/her loan, he/she needs to bear the revised charges, i.e. 2%-3% of the principal outstanding+18% GST, which was earlier used to be 15%. So, suppose, on a principal outstanding of Rs.15 Lakh, a borrower will now pay 2%-3% of principal outstanding+18%, which means a total sum of ₹35,400-₹53,100. If we look at the earlier scenario, the borrower earlier needs to pay ₹34,500-₹51,750. So, as you can see there is a marginal difference, if we compare pre and post GST scenario.
Thus, it would not be wrong to say that this latest revision of 18% rate, will not affect many as the hike in marginal and it won’t create much of a difference on the pocket of many. So, all the home loan borrowers need not to bother with this revised rate. However, one thing that needs to be mentioned here is the fact that if we are talking about GST impact on home loan, an individual should also be aware of the tax implication on property be it ready to move in or under construction. A 12% GST rate will be applicable on under-construction. Not only this, the developers need to pay 28% tax on cement and 18% on steel, which can further be claimed through Input Tax Credit (ITC) while paying the tax on the completed property.