New GST on EMIs: Loans and Financial Services Tax
- GST does not apply to the principal or interest of EMIs, only to processing and penalty fees, which are taxed at 18%.
- Credit card EMI conversions also incur an 18% GST on processing and conversion fees, but not on the interest.
- GST on EMI payments mainly affects one-time charges like processing fees, not the monthly instalments.
- Input Tax Credit on GST paid for loan processing fees is available only for business loans, not personal loans.
- Understanding GST on EMI helps with financial planning and avoiding unexpected charges.
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% |
Component
GST Applicable?
New GST Rate
Component
GST Applicable?
New GST Rate
Component
GST Applicable?
New GST Rate
Component
GST Applicable?
New GST Rate
Component
GST Applicable?
New GST Rate
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% |
Component
GST Applicable?
GST Rate
Component
GST Applicable?
GST Rate
Component
GST Applicable?
GST Rate
Component
GST Applicable?
GST Rate
Component
GST Applicable?
GST Rate
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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 ❌ |
Loan Purpose
ITC Available?
Loan Purpose
ITC Available?
Loan Purpose
ITC Available?
Loan Purpose
ITC Available?
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.
