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Unraveling the Impact of GST on Personal Loans with Nitstone Finserv

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Unraveling the Impact of GST on Personal Loans with Nitstone Finserv

Many indirect taxes imposed by the federal and state governments have been replaced with the single Goods and Services Tax (GST). The ability to impose and collect taxes on goods and services is shared by the central and state governments under the GST.

Impact of GST on Personal Loan

Before the GST was implemented by the Indian government on July 1st, 2017, personal loans were subject to a 15% service tax. Nevertheless, a 3% increase in the GST on loans was brought about by the new arrangement. Thus, borrowers who take out personal loans are also responsible for the 18% GST component.

Personal loans are now costlier than they were before the increased GST was implemented. Still, if you need more money without providing collateral, personal loans are a better choice. Even with the greater costs brought on by the higher GST rate, personal loans are still a popular option for those in need of financial assistance. They offer the benefit of having additional funds available without requiring collateral. Personal loans are still a good choice for people looking for financial flexibility, even with the new GST.


Factors Affecting the GST on Personal Loans

How the GST affects personal loans depends on several important aspects. These variables not only define the extent of the tax's impact but also determine the borrowers' overall financial results.

Let's examine these decisive elements:

Processing Fees: The processing fees associated with personal loans are the main subject of GST. The relevant GST may change depending on the financial institution and its fee schedule that is selected, as these fees range throughout lenders.

Loan Amount and Time Duration: Although the loan amount and duration are not directly subject to GST, they do have an indirect impact on the processing fees. Larger loan amounts or longer loan terms typically translate into higher processing costs, which raise the GST component.

Regulatory Modifications: Any changes made by the government to the rates or regulations governing GST have an immediate effect on the amount of GST imposed on services related to personal loans.

Supplementary costs: GST is also applied to other loan-related expenses like prepayment penalties, late payment fines, and check bounce costs. The overall GST cost of a personal loan may vary depending on the kind and frequency of these charges.

Benefits and Drawbacks of Personal Loans Under the GST : 

The Goods and Services Tax (GST) may have different effects on personal loans depending on regional differences and changes to tax regulations.

We have listed a few benefits and drawbacks below:

Benefits of Personal Loans:- 

  • Openness and Uniformity: The Goods and Services Tax (GST) standardizes the financial industry's tax structure, enhancing the transparency of loan processing fees.

  • Simplified Tax Structure: GST simplifies the tax system by combining several indirect taxes into a single tax, which makes it easier for borrowers to understand the tax restrictions on their loans.

  • Regulation Adherence: By guaranteeing that financial institutions adhere to uniform tax procedures, GST fosters an atmosphere that is conducive to fair lending.

Drawbacks of Personal Loan:-

Higher Beginning Expenses: The first cost of applying for personal loans is somewhat higher as a result of the GST being applied to processing expenses.

Complexity for the Client: For some borrowers, it might be challenging to understand the tax ramifications of the numerous fees connected to personal loans.

Impact on Loan Affordability: For borrowers with tight budgets in particular, the increased GST cost on processing costs may have an impact on the loan's overall affordability. 

Ways to Prevent GST on Individual Loans

It is not feasible to fully avoid GST on personal loans legally, but you can reduce its effects. Before applying for a loan, you can reduce the GST load by selecting lenders with lower processing fees or by haggling over expenses.

Taxable Fees Linked to Individual Loans

Not all fees related to personal loans are governed by GST. Important elements subject to GST include:

How GST Affects Processing Fees

The financial institution incurs administrative costs when you apply for a personal loan; these costs are then passed on to you as processing fees. This processing is subject to an 18% GST charge because it is considered an institution-provided service.

For instance, assuming a 3% processing fee on a ₹2,00,000 personal loan, the processing fee before taxes would come to ₹6,000. The total processing charge you would be required to pay, including the 18% GST, is ₹7,080.

GST Is Applied to Prepayment Fees

The ability to make early payments is a common benefit of personal loans; however, there is a cost involved known as the prepayment charge. This charge is liable to Goods and Services Tax (GST) since it is considered a service rendered by lenders.

For instance, if your lender charges a 2% prepayment cost on a ₹50,000 personal loan, the prepayment fee would be ₹1,000, and the total amount due would be ₹1,180, which would include an 18% GST.


In conclusion, those who are financially conscious should be mindful of the effects that the GST would have on personal loans. Nitstone Finserv’s borrower-friendly features help to offset the modest rise in the initial cost caused by the inclusion of GST on processing fees.

In conclusion, understanding the impact of GST on personal loans is essential for borrowers to make informed financial decisions. Nitstone Finserv takes pride in empowering borrowers with knowledge and fostering a transparent and responsible lending environment in the ever-changing financial landscape.


Written By

Sanjana D Phutanay

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