Active personal loans in India grew from ā¹9.51 crore in FY2023 to ā¹12.77 crore in FY2024. While the interest rate and tenure may be different, GST on personal loans is the one thing that is common across all personal loans. It’s an important factor as it increases the overall cost of borrowing.
Many borrowers believe that GST applies to the entire loan or even the EMI. The truth is that both the principal amount and interest on your loan are completely GST-free. In this blog, we will explore the aspects of personal loans that are subject to GST.
The government does not levy any GST on the principal amount you have borrowed. It is because GST is a tax that is levied on the supply of goods and services. Lending money itself is not considered a supply of goods and services under the GST law. So, thereās no GST on personal loan principal or EMI.
GST is not applicable to the interest on personal loans, either. Under the RBI guidelines, interest is considered a cost for the use of borrowed money and not a supply of goods and services. As a borrower, this exemption helps you lower the cost of borrowing.
Here are all the major charges and fees that you pay GST on:
Processing a loan is considered a financial service. It covers both the administrative cost and operational costs incurred by a lender (banks & NBFCs) to approve and disburse a loan. This is why the GST on the loan processing fee is capped at 18%.
If, in any case, you close your loan early, then lenders may charge you a fee. Though it may not seem obvious, the government considers this a service. This is why foreclosure or prepayment charges are subject to 18% GST.
From documentation to penal charges, there are other associated costs that attract GST. GST also applies to late payment penalties, loan cancellation charges, and mode-swap fees, all at 18%.
| GST on Personal Loans | |
| Charge Type | Applied Tax |
| Processing Fees | 18% |
| Prepayment/Foreclosure Fee | 18% |
| Late Payment/Penal Charges | Exempted (0%) |
| Documentation Charges | 18% |
| Renewal Fees | 18% |
| Loan Principal | Exempted (0%) |
| Interest | Exempted (0%) |
While repaying your loan amount or interest is not affected by GST, some processes are affected by it. Here is how they impact you:
Example 1: Foreclosure/Prepayment
Suppose your outstanding loan is ā¹2,00,000 and the foreclosure charge is ā¹10,000.
GST on this charge is ā¹1800 (18% of ā¹5,000), so the total paid is ā¹11,800.
Example 2: Loan Processing
Suppose you get a new personal loan of ā¹5 lakh, and the processing fee is ā¹10,000:
Then, your GST on the loan processing fee is ā¹1,800 (18% of ā¹10,000), making the total processing fee ā¹11,800.
Earlier, it was unclear whether penal interest or late payment charges on loans attracted GST. The CBIC has now clarified:
While you cannot escape personal loan charges GST, you can indirectly reduce the cost of borrowing by choosing a lender that offers favourable terms. At DMI Finance, we are committed to making financing both accessible and affordable. Here are all the benefits you get when you apply for a personal loan with DMI Finance:
GST adds a layer to the cost of borrowing funds against personal loans. The 18% GST on processing fees, prepayment penalties, and late payment fees add to the total fee that you pay. Knowing what is subject to GST assists you in making better choices and budgeting finances.
And if youāre looking for a transparent lending experience, DMI Finance offers personal loans with seamless approvals and zero paperwork via DigiLocker. Apply for a personal loan now to meet all your financial requirements.
TheĀ DMI Finance personal loans application processĀ is simple:
Your application will be submitted for review, and youāll be notified of approval shortly.
1. Is GST charged on the principal amount of a personal loan?
No, the principal amount of a personal loan does not attract any GST.
2. Do I pay GST on interest charged on my personal loan?
No, interest is exempt under the GST law. It is treated as a financial transaction, not a service.
3. Which personal loan charges attract GST?
GST applies to fees like processing, prepayment, and foreclosure. These are considered service charges by the lender. Each of them is taxed at 18%.
4. What is the current GST rate on personal loan fees?
The GST rate remains fixed at 18% as of 2025. It applies to all taxable loan-related service charges.
5. Is GST applicable to personal loan EMI payments?
No, EMIs include principal plus interest, both of which are GST-exempt. So, your monthly repayment stays untouched.
6. Are penal charges like late fees subject to GST?
Yes, penal charges like late payment fees on personal loans are subject to GST at the standard rate of 18% in India.
7. Can GST on personal loan fees be avoided or negotiated?
You cannot avoid GST as it is mandatory by law. However, you can reduce it indirectly by negotiating lower fees. Lower base charges mean lower GST payable.
8. Does GST apply to loan cancellation charges?
Yes, loan cancellation charges are taxable at 18%. This is because it counts as a service fee.
9. How can I calculate GST on personal loan fees?
Itās simple: multiply the fee amount by 0.18. The result is your GST liability. Add this to the base fee to get the total.
10. Where can I track GST applied to my personal loan?
You can see GST details in your loan sanction letter and monthly statements. Lenders are required to show GST separately from the base fee.
