With the application of GST 2.0 on September 22, 2025, in India, the country has seen an impressive refinement of its Goods and Services Tax structure. This has assisted in improving the focus on easy usage of the tax regime, reducing the approval burdens and also improving the clarity. While the main focus has always been on segments like automobiles and consumer goods, it is important to understand how these changes affect personal loans, particularly the GST personal loan EMI.
Understanding GST’s Impact on Personal Loans
Under the previous GST structure, personal loans were subject to an 18% tax on the processing fees and prepayment charges. However, GST 2.0 helps in introducing a streamlined tax framework with only two primary rates, which are 5% and 18%. This ease in tax regime is done by aiming to decrease the cascading effect of taxes, and also helps in improving the way of doing business.
Key Points:
- Processing Fees: The financial institutions generally charge a processing fee to help cover the administrative costs. Under the GST 2.0, these fees continue to attract an 18% tax, which may slightly increase the overall cost of obtaining a personal loan.
- Prepayment Charges: If there is a borrower who decides to repay the loan before the scheduled time period, then the lenders should impose prepayment charges. These changes are also subject to an 18% GST, which probably affects the total repayment amount.
- Interest Rates: Importantly, GST does not apply to the interest component of the personal loans. Hence, the interest rates applied by the financial institutions and financers remain unaffected by GST 2.0.
Will Your Personal Loan EMI Change?
The application of the GST 2.0 in India does not have a direct impact on the EMI (Equated Monthly Instalments) of a personal loan. Since GST is not applied on the principal or interest elements, the monthly repayment amount remains untouched.
Example:
If an individual has applied for a personal loan of INR 10,00,000 with a tenure of 10 years at an interest rate of 12% per annum.
- Before GST 2.0: Processing fee = INR 30,000 (3% of loan amount) + INR 5400 (18% GST) = INR 35,400.
- After GST 2.0: Processing fee = INR 30,000 (3% of loan amount) + INR 5400 (18% GST) = INR 35,400.
In this example, the processing fee remains the same, and the EMI does not change. However, what can be seen is that the total cost of the loan over its tenure may vary due to other factors such as changes in the interest rates or loan tenures.
Utilising a GST 2.0 EMI Calculator
To have a proper measurement of the impact of GST 2.0 on personal loans, it is advisable to use an EMI calculator, which is provided by the banks and financial institutions. These calculators allow you to put various parameters such as the loan amount, interest rates and tenure to determine your monthly EMI.
Steps to Use an EMI Calculator:
- Visit a Reliable EMI Calculator: Have access to an online EMI calculator from a reputable source, such as the Axis Bank EMI calculator.
- Enter Loan Details: After accessing an online EMI calculator, input the loan amount, the interest rate and the tenure of the loan. For instance, an INR 6,00,000 loan amount, 10% interest rate and a 5-year tenure.
- Calculate EMI: After entering all the relevant and necessary amounts in the spaces given below, you click on the “calculate” button to determine your monthly EMI.
- Analyse Results: You can then have a review of the EMI amount and the total repayment to understand the financial commitment.
By making use of an EMI calculator, you can make and take a properly informed decision about your personal loan and also plan your finances accordingly.
Conclusion
To have a comprehensive overlook of the whole blog, GST 2.0 brings a more streamlined tax structure, which does not directly affect the EMI of the personal loan, as GST is not applied on the principal amount of the loan and is not applied on the interest components. However, the borrowers should also be aware of the potential increases in processing and prepayment charges due to the 18% GST slab on these fees. Making use of the EMI calculator can also help borrowers determine the total cost of the loan and make informed financial decisions. If you want to apply for a personal loan or need personalised assistance to explore the various loan options, then consider consulting with a professional financial advisor or making use of the tools provided by banks and financial institutions. To get personal loans against property or to get a mortgage loan at a lower interest rate, you can always turn to GoFinance for further assistance.
