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Understanding the Impact of GST Rate on Personal Loans: A Comprehensive Guide
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Facing a financial crunch can be an incredibly stressful experience. It leaves you worried about how to make ends meet and deal with unexpected expenses.
Fortunately, a personal loan might have been your knight in shining armour if you have ever found yourself in such a condition. It can be a saviour for a home renovation, planning a dream wedding, a long-awaited vacation, or any sudden financial need. This is where a quick and easy personal loan by Kotak Mahindra comes in.
We provide interest rates and charges that won't let you stretch yourself. But with the government's introduction of Goods and Services Tax (GST), you might wonder how it affects personal loans. Let us break it down in simple terms.
GST on Loan Processing Fee
A processing fee is charged to process your loan application and apply for personal loans. Here is the twist: GST on personal loan comes into play here. A GST rate on personal loan of 18% is applied to this processing fee. Typically, the processing fee for a personal loan hovers around 3%. For instance, Kotak Mahindra Bank charges up to a 3% processing fee.
Prepayment Charge
Supposedly, you've taken a personal loan but suddenly repay the entire amount before your loan tenure ends. Great, right? Well, yes, but there's a catch. A prepayment charge is applicable, and GST on personal loan also tags along.
The GST rate on personal loans of 18% applies to the prepayment charge for personal loans. These charges depend on the number of EMIs paid or a certain number of months' worth of interest. Kotak Mahindra Bank determines the prepayment charge based on the number of EMIs you've already paid. All of this is aligned with GST rules, which have applied to taxable supplies since July 1, 2017.
Here are the foreclosure charges for personal loans based on the outstanding principal and loan amount:
Please note that these terms are applicable only for Sanction Letters issued on or before June 21, 2023, and are subject to specific conditions. Importantly, these foreclosure charges do not apply to digitally availed loans.
The EMI Component
On the positive side, your EMI stays safe from all of this. However, at this stage, GST might influence the cost of your personal loan. However, it does not interfere with EMI. If you are concerned about your monthly budget, then relax. Your EMI for personal loan shall not be affected by GST.
Conclusion
In a nutshell, GST on loan processing fees and prepayment charges is applicable at 18%. Though it may add a minor bump to your loan cost, the EMI remains the same. It offers at least some peace to your pocket. Want to know the monthly instalment for a Rs. 5 lakh personal loan? Use our simple personal loan EMI calculator to determine how much to save monthly.
Kotak Mahindra Bank has your back if you're looking for competitive personal loan interest rates to meet your financial needs. So, your trusted personal loan is still there whether you're planning that dream wedding or that long-overdue vacation. Don't let GST scare you away from financial freedom.
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