The escalation of the GST 2.0 in India is seeing a landmark reform, affecting multiple sectors, including the real estate and housing finance. The homebuyers and the borrowers are very curious about: Will my home loan EMI after GST reforms change? How will GST affect home loans, or will GST 2.0 home loan interest impact my repayment? This blog will explain all the key points and help you understand how GST reforms real estate loans and influence your borrowing costs.
Understanding GST 2.0 and Home Loans
Under the earlier GST framework (GST 1.0), home loans themselves were taxed on the principal and interest amount. Only some ancillary charges attracted GST:
- Processing fees
- Administrative/legal/documentation charges
- Prepayment or foreclosure charges
With the blending of GST 2.0, the tax regime has now been simplified into two major slabs, which are 5% and 18%. While the home loan interest rates remain exempt from GST, the related service charges still attract 18% GST, unless otherwise exempted by the government notifications.
This difference is very important because many borrowers have mistakenly believed that the GST 2.0 has a direct impact on EMIs. Whereas in reality, the monthly EMI is calculated on principal, interest and tenure. The GST does not factor into this computation.
How GST 2.0 Impacts Housing Loans
While there is no change in the EMI, GST 2.0 has an indirect influence on the home loans:
- Processing Fees: The lenders often charge a processing fee ranging from 0.25% to 1% of the loan amount. Under the GST 2.0, 18% tax will be applicable on this fee, resulting in a slight increase in upfront costs.
- Ancillary Services: The legal documentation, property verification and all the administrative charges now attract GST. Hence, some of the real estate developers have also started passing the GST benefits on to the housing-related services, decreasing the overall cost for buyers.
- Loan Approval Process: The GST 2.0 aims to have better transparency amongst the borrowers and the lenders. The borrowers who are self-employed or own a business and are applying for a high-value loan with the bank or any financial lender can have their GST filings, while also accelerating the loan approval for compliant borrowers.
- Impact on Total Loan Cost: Even though the EMI remain largely unchanged, the total cost of the loan may be affected by the GST on processing and related fees. Understanding these charges may help borrowers plan finances more accurately.
Example: Home Loan EMI Before & After GST Reforms
Below is an example given, which shows the effect of GST 2.0 on the home loan of Rs. 30 lakhs over a period of 20 years at an 8% interest rate:
| Component | Before GST 2.0 | After GST 2.0 | Effect |
| Processing Fee (0.5%) | ₹1,50,000 + ₹27,000 (GST 18%) = ₹1,77,000 | ₹1,50,000 + ₹27,000 = ₹1,77,000 | No change, GST rate unchanged |
| Legal/Admin Fees | ₹50,000 + ₹9,000 (GST 18%) | ₹50,000 + ₹9,000 | No change |
| Monthly EMI | ₹24,130 | ₹24,130 | EMI unaffected |
| Total Loan Cost | ₹57,91,200 | ₹57,91,200 | No change in EMI, minor upfront impact |
Key Insight: The EMI remains unchanged after GST 2.0. The borrowers mainly save on money indirectly if the developers or banks absorb some GST on processing fees, or through discounts on ancillary services.
GST Reforms Real Estate Loans: What Borrowers Should Keep in Mind
- Check Processing Fees Carefully: Even a minor change in the percentage rate can add up on high-value loans. Therefore, it is advised to compare different banks.
- Understand Ancillary Costs: The GST applied to the documentation, legal checks and property verification fees. Planning helps in avoiding surprises.
- Maintain Tax Compliance: Self-employed or business borrowers may need to show their GST returns to ensure a smooth loan approval.
- Use EMI Calculators: Many banks are providing home loans EMI calculators post GST 2.0, enabling an accurate planning of the monthly repayments, including all the fees.
- Negotiate With Lenders: Several banks are absorbing a part of the GST on processing the fees for promotional offers.
Conclusion
To have a comprehensive summary of the blog, GST 2.0 home loan interest and EMIs remain largely unaffected because the GST is not applicable on the principal and interest amount. The GST affect on home loans is also limited to the processing and ancillary fees. Hence, the borrowers can benefit directly from reforms through:
- Greater transparency in lending and fee structures
- Reduced compliance friction for self-employed or business borrowers
- Potential savings on developer-related services if GST benefits are passed on
Having an understanding of these changes ensures that the homebuyers can plan effectively and take advantage of the GST reforms in the real estate loan environment without worrying about higher EMIs.
If you are applying for a home loan and are confused about the interest rates and need a consultation, then come to GoFinance. GoFinance will provide you with a consultation as well as a home loan at attractive interest rates.
