Impact of GST on Personal Loan

The Government of India passed the Goods and Services tax, more popularly referred to as GST in parliament on 1st July 2017. While the intention was to eradicate multiple tax slabs and bring in its place a ‘one nation, one tax’ approach, the GST has been the subject of a lot of debate among industry experts, finance gurus and political analysts over the years.

What is the impact of GST on Personal Loan?

Personal loans today are a popular financial product for thousands of Indians across the country. A collateral-free loan, personal loans can be used to meet your financial needs in the short term. Be it purchasing a high-value gadget, going on a luxury holiday, higher education expenses or even medical expenditures, personal loans are ‘no questions asked’ financial products which can be used to fund any of these expenses and more.

Prior to Jul 1st, 2017, the processing fee on personal loans attracted a 15% Service tax. However, the implementation of the GST put personal loans under its purview, increasing the tax from 15% to the standard 18%.

This implied that anyone seeking a personal loan would be liable to bear the additional GST component on it that essentially meant that personal loans would become more expensive for the borrower.

Despite the increase in taxation, personal loans continue to enjoy popularity with lenders receiving millions of applications in any given year.

SMFG India Credit offers instant personal loans for up to Rs. 25 lakhs on affordable interest rates with a repayment tenure of 12 to 60 months.

Components of a Personal Loan That are Affected by GST

1. Processing Fee: The processing fee is charged by the lender for the services rendered for processing the personal loan application. This calls for a levy of 18% GST on the amount of processing fees charged by the lender. For example, if you are taking a personal loan of Rs 2 lakh and the processing fee charged is 2% of the loan amount, which would bring the amount to Rs 4,000. The applicable GST on the processing fee will be Rs 720. Therefore, the final processing fee amount will be Rs 4,720. 
2. Prepayment and Pre-closure Charges: At the time of prepayment or pre-closure of a personal loan account, the lender needs to provide you with the service for closure of the loan account. Hence, GST is applicable on the charges taken for rendering the service. For example, on a prepayment amount of Rs 50,000, the lender charges a 5% prepayment penalty. At 18% GST rate, the applicable GST amount on the prepayment penalty will be Rs 450, which brings the total prepayment charges inclusive of GST to Rs 2,950. 

How to Save GST Charged on Personal Loan?

You cannot avoid the GST charges on processing fee, prepayment and pre-closure charges, but through effective planning, you can cut down on the GST charges.

For instance, choosing a lender that charges a lower processing fee or prepayment charge on personal loan can help you reduce GST. Also, if you can plan your EMIs accordingly, your prepayment amount will be not significant, which can again help you save GST charged on personal loan. 

However, the best way to avoid higher GST is to complete the entire loan tenure, instead of making prepayment and closing the personal loan account early.

Meet the Required Eligibility Criteria

To apply for a personal loan from SMFG India Credit, it is important that you meet the basic personal loan eligibility criteria.

The criteria include:

• Be a citizen of India
• Be between 21 and 65 years of age at the time of loan application
• Be a salaried employee at a private or public enterprise or demonstrate a regular source of income for self-employed individuals
• Meet the minimum monthly salary / annual turnover criteria
• Have a minimum CIBIL score of 750 

Please note that apart from the above parameters, other factors such as credit history, debt to income ratio, etc. will also be used to determine your overall eligibility. You can simply use our personal loan eligibility calculator. This will help you understand the maximum loan amount you may be able to get based on your disposable income. You can also use the personal loan EMI calculator to understand how the tenure you choose can affect your monthly EMI.

Documents Required For a Personal Loan

The eligibility check is only the first step. Post successful completion of step one, you need to fill in the online application form which is also available on the SMFG India Credit website. Make sure that you submit all mandatory information and personal loan documents to ensure submission online.

This is followed by uploading softcopies of the necessary documents. These include:

• Proof of Identity – PAN card, voter’s ID, passport, driving license  
• Proof of Address – Utility bills, passport, rental agreement  
• Proof of Age- Aadhar card, PAN card 

In addition to the KYC documents, applicants will need to provide:

For salaried individuals:

• Past 3 months’ salary slips.
• Last 6 months bank account statements 

For self-employed individuals:

• Last three years income tax returns
• Last 6 months bank statements 

Mention the amount of loan that you require from SMFG India Credit. You will be notified by SMFG India Credit if you are eligible for pre-approved personal loan offers that may come with preferential rates of interest and flexible loan repayment tenures. Please note that depending on your profile & requirement, as well as SMFG India Credit’s policy at the time of loan application, additional documents may also be requested.

Information Verification

SMFG India Credit has a dedicated personal loan team that verifies and vets your application, documents and also runs a credit check on your profile. With a credit rating of 750 or above, you have a greater chance of the personal loan getting sanctioned.

Loan Sanction & Disbursal

If SMFG India Credit is satisfied with all the mandatory parameters and checks, you should get your personal loan sanctioned. Typically, you would receive a loan agreement via email outlining the terms and conditions of the loan, loan amount, interest rates, repayment tenure, applicable fees and charges and any additional fine print.

Ensure that you sign the loan agreement and email it back to SMFG India Credit. The personal loan will be disbursed upon receipt of the signed agreement.

If you have any queries or questions, you can always get in touch with SMFG India Credit’s Customer Service team on our toll-free number 1800 103 6001 . Alternatively, you may email us at   or visit the SMFG India Credit branch near you.

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