New GST on EMIs: Loans and Financial Services Tax

EMIs (Equated Monthly Instalments) make it easier to buy things like phones, furniture, cars, and even insurance. But did you know that GST also applies to some parts of your EMI? Whether you’re using a loan or a credit card, this guide explains how gst on emi is applied and what you’re really paying each month.

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New GST Rate on EMI & Loan Charges in India

The Government of India is updating GST rates effective after 22 Sep 2025. Below are the expected new GST rates for EMI and loan-related components (no compensation cess).

When Does GST Apply on EMI?

Component GST Applicable? New GST Rate
Principal repayment No ❌ —
Interest (for banks/NBFCs) No ❌ —
Processing fee Yes ✅ 18%
Foreclosure or penalty fee Yes ✅ 18%
Credit card EMI conversion Yes ✅ 18%

Note: Core loan amounts and interest are outside GST; service/processing-type charges attract GST.

Understanding Old GST on EMIs

(Old GST Rates – Applicable Until 21st September)

First, let’s break it down:

  • EMI = Principal + Interest
  • GST is not charged on the principal, but it can apply to interest and processing fees, depending on the type of EMI or loan.

So, the gst on emi is not a flat charge on the full EMI—it’s charged only on services involved in processing and maintaining the loan.

When Does GST Apply on EMI?

Component GST Applicable? GST Rate
Principal repayment No ❌ –
Interest (for banks/NBFCs) No ❌ –
Processing fee Yes ✅ 18%
Foreclosure or penalty fee Yes ✅ 18%
Credit card EMI conversion Yes ✅ 18%

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GST on Credit Card EMI

  • Banks/NBFCs charge a conversion or handling fee
  • GST @ 18% is applied on these charges
  • Interest charged monthly is not taxed, but fees are

So, the gst on credit card emi is mainly on:

  • Processing/conversion fees
  • Late payment charges
  • Prepayment penalties

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GST on EMI Payment: How It Appears

Let’s look at an example of EMI with GST:

  • Product price: ₹50,000
  • Loan tenure: 6 months
  • Processing fee: ₹500
  • GST on processing fee: ₹90 (18%)
  • Total upfront cost: ₹590

Monthly EMI will include principal + interest, and GST will apply only to one-time charges unless otherwise stated.

So, gst on emi payment appears in the initial charges, not the monthly instalments (in most cases).

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Can You Claim Input Tax Credit (ITC) on EMI GST?

Loan Purpose ITC Available?
Personal loan No ❌
Business loan Yes ✅
Equipment on EMI (for business use) Yes ✅
Consumer durable EMI (TV, phone) No ❌

You can  claim Input Tax Credit  on GST paid on loan processing fees only if the loan is for business use.

Conclusion

Understanding gst on emi helps you avoid surprises on your monthly bills and also ensures proper tax planning, especially if you’re using loans or credit for business expenses.

Susheel Kumar
Susheel Kumar
Chartered Accountant
MRN No.: 096252
City: Delhi

I am a Chartered Accountant with over 20 years of experience and a finance content writer. I focus on educating people about finance and taxation. I have written many blog posts on finance, taxation, trading, and investment on the BUSY website. My goal is to increase financial understanding by making complex concepts easier to grasp and to support educational programs in India.

Frequently Asked Questions

  • Is GST charged on the EMI itself?
    No, GST on EMI is not charged on principal or interest. It applies to fees like processing and prepayment charges.
  • What is the GST on credit card EMI?
    GST is charged at 18% on processing and conversion fees during EMI setup or cancellation.
  • Is there GST on EMI interest?
    No. Regular interest on loans is exempt from GST.
  • Can I claim GST credit on EMI-related charges?
    Yes, if the EMI is for business use, and you're GST-registered.
  • How do I check the GST in my EMI payment?
    Check your loan or card statement for separate GST charges on fees—not the EMI amount itself.
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