Now that finally GST ( Goods and Services Tax) is implemented in the country, it would not be wrong to say that it is going to impact a common man’s life in many ways. Soon after this indirect tax regime came into effect from 1 July, 2017, goods have become cheaper and services are more expensive now. Everyone is talking about the updated tax slabs of 5%, 12%, 18% and 28% which will be levied on various goods and services.
But have you ever wondered what this indirect tax regime has in store for loan borrowers, especially personal loan? Do you know the GST impact on personal loan? Well, if not, nothing to worry. Yes, because all you need to do is just read the article below to get the answers of all your queries.
Those who are willing to avail this unsecured loan or have already availed the same, must have aware what this new tax regime has in store for them. Talking about the current scenario, the service tax on loans which was earlier used to be 15% will now be replaced with a standard 18% rate, thus a little burden will be there on your pocket to avail and repay the loan. Lets’ just have a detailed discussion on this in the article below…
In case of a personal loan, there are lot of charges that basically includes the service tax. A processing fee of 1%-2% is charged by the lenders on availing this unsecured loan. Generally, service tax is levied on the processing fee and prepayment charges. But now a standard rate will be applicable on the loan. Let’s take the help of the examples below to make you understand better.
Pre GST Scenario
Suppose, Ajay Sharma wants to avail a loan of ₹3 Lakh so as to visit SIngapore with his family on a vacation. Now, the one lender, after evaluating his profile has agreed to offer him the same loan amount. The lender is offering him the loan at an interest rate of 11.49% for a tenure of 4 years along with charging a one-time processing fee of 1% of the loan amount. Well, which means Ajay needs to pay a processing fee of ₹3000+15% service tax on the same. So, in total he needs to pay ₹3,450 to avail a loan.
Post GST Scenario
Suppose, Mukul Gupta wants to renovate his home, hence has applied for a personal loan of ₹3 Lakh. And, the best part is that one lender has agreed to offer him the same loan amount for a tenure of 4 years at an interest rate of 11.49% per annum. However, the lender is also charging a one-time processing of 1% of the loan amount, which means ₹3,000. But, now the service tax on the fee will be 18%, which means Mukul in total needs to pay ₹3,540 post GST.
So, in both the scenario, you can clearly see the processing fee has witnessed a hike. Though the jump in the fee is marginal but still it will affect many.
Moving on with prepayment charges, the banks usually take 2%-5% of the outstanding loan+service tax. Here, also the service tax of 15% is now be replaced with a standard rate of 18%, thus make borrowers to pay a little extra from their pocket on the same. For example- If the outstanding loan say is ₹3 Lakh, the prepayment on the same would be ₹6,000+15% service tax, making a total of Rs.6,900. But, now post GST, the same is replaced by ₹6,000+18% service tax, hence now making it to ₹7,080.
Now, you can see how the processing fee and prepayment charges are affected by this new rate slab. How this unsecured loan is going to be slightly expensive, affecting your overall monthly budget. If experts are to be believed, the GST impact on personal loan is definitely the talk of the town as there are many existing borrowers whose loans are already running in the country. So, it would not be wrong to say that a bigger strata of the society needs to face the marginal hike in personal loan fee and charges.