All the major banks allow their customers to convert the credit card transactions into EMI payments. Converting them into EMIs makes the repayments more manageable and helps the users save money in the process. At the end of the billing cycle, the customer has to pay the minimum amount due on their credit cards and also the EMI amount. However, since the introduction of GST, it has become important for the customers to know whether their credit card EMI payments will be affected by GST or not.
How much GST do you have to pay on credit card EMIs?
All credit card services incur GST at 18%. Before the introduction of GST, all credit card services incurred service tax at 15% but now this service tax has been replaced with 18% GST on credit cards. This will be applicable on interest on credit card EMIs, processing fees, late payment charges, annual fees, over-limit charges and all other fees and charges levied by your credit card provider.
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When is 18% GST Applicable on Credit Card Repayments?
With respect to credit card EMIs, GST will be applicable on EMI processing fee and also on the interest component of your EMI. You can check the same on your credit card EMI table. Aso, if you fail to pay the EMIs due, finance charges will be applicable on the unpaid amount and GST will be levied @18% of the finance charge. This can easily lead your credit card dues to pile up. Hence, it is always recommended to pay your credit card EMIs as and when due.
Apart from this, GST rate of 18% is also applicable on all fees and charges that the bank levies. Below are some common fees and charges applicable on credit cards:
- Overlimit fee (when you use up more than your credit card limit)
- Late payment charges (when you do not pay the minimum due amount by the due date)
- Annual fee or joining fee applicable to your card
- Foreign exchange markup fee (when you spend in foreign currency)
- Any other fees and charges levied by your credit card provider
| Click here to know more about Credit Card Interest Rates / Finance Charges and how it functions. |
Credit Card EMIs: GST vs. Service Tax Comparison
To understand how GST on credit card EMI interest works, one can take the help of the below-mentioned example:
If a purchase is made on a 6-month EMI using a credit card, the total interest amount to be paid in 6 months is Rs. 532 and a processing fee of Rs. 150 is also charged.
| Details | Amount | Service tax at 15% | GST at 18% |
| Loan amount | 10,000 | ||
| Interest Rate | 18% | ||
| EMI tenure | 6 months | ||
| Interest paid in 6 months | 532 | 79.8 | 95.76 |
| Processing charge | 150 | 22.5 | 27 |
| Total | 102.3 | 122.76 |
As per the table, before GST when one paid service tax at 15%, a total tax rate of Rs. 102.3 was charged on the interest and processing charge, but after the introduction of GST, the total tax one pays is Rs. 122.76. An extra amount of Rs. 20.46 is charged. Since the GST is calculated on the interest amount and not on how much one uses his/her credit card, the impact of extra tax under GST is minimal if one is paying all payments on time.
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FAQs
If I pay bills using credit cards, will GST be charged twice?
No, GST will not be charged if you choose to pay your utility bills using credit cards.
How to claim input tax in GST?
To help buyers to claim the input tax credit, the GST law says that the supplier should deposit the GST and file for GST returns. This is how it is ensured that everyone pays their GST.
What is the rate of GST for banks and other financial institutions?
Banks and financial institutions are charged a rate of 18%. This is a 3% increase from the earlier service tax rate of 15%.
How will GST impact me as a service provider?
Before GST, all service providers were supposed to pay a service tax which is paid to the central government. The service tax is replaced by GST. The GST amount will depend on the ‘place of supply’.
What is ‘supply’ in terms of GST?
As per GST rules and regulations, ‘supply’ including sale, transfer, lease, import of services, barter, etc. of goods and services made for a value amount will attract CGST(to be paid to centre) and SGST(to be paid to the state).
How is GST different from current taxes?
Taxes treat goods and services differently. Goods attract excise tax at the manufacturing stage and VAT at the time of sale. Services, on the other hand, attract services tax. GST, however, does not differentiate between goods and services and between traders and manufacturers.