GST Charges

Owned by Nisha Kumari (Unlicensed)
Last updated: Jul 07, 2023
4 min read

OBJECTIVE

In this section of the manual, you will know about GST Charges.

GST Module on Personal loans and Business loans

What is GST?

GST stands for Goods and Services Tax. It is based on One Nation, One Tax concept. GST removes the cascading effect, that is a tax on tax effect on the sale of goods and services, thereby decreasing the cost of goods and services. 

The GST was initiated in the year 2000. From then to now, it took 17 long years for GST to come into effect. On 29th March 2017, the Goods and Service Tax Act was passed in the Parliament and the Act came into effect on 1st July 2017.

GST has impacted various industries and the banking sector is one of them. The banking sector provides many kinds of services to its consumers. So, it comes as no surprise that the implementation of GST has had affected the banking sector.

Impact of GST on Personal Loans

Earlier service tax of 15% was levied on personal loans. The service tax is now replaced with GST, which is at 18%. Looking at the 3% increase in the tax, a lot of people thought that getting a personal loan is more expensive now than before.

But that’s not the case. 

GST is NOT applied on loan repayment or interest payment of the loan. Rather it is levied on the processing charges, pre-payment charges, and other personal loan charges paid to the bank or lender. 

As the major chunk of personal loan repayment consists of payment of interest and principal, GST’s impact on a personal loan is negligible. 

 

GST on Personal Loans

The banks generally charge a processing fee of 1% to 2% of the loan amount. And the pre-payment fee between 2% to 5%.

Let’s take an example:

Assuming you have a personal loan of ₹ 5 Lakh. 

Fees you need to pay the bank for its services are:

  • Processing fee of 1% of the loan amount

  • Pre-payment fee of 2% of the outstanding principal loan amount

 

Bank fees for a personal loan of ₹ 5 Lakh

Amount payable to the bank

Fee payable when Service Tax is applied at 15% (pre-GST era)

Fee payable when GST is applied at 18% (GST era)

Impact of GST (GST minus Service Tax)

Processing fees of 1% of the loan amount

₹ 5,000

₹ 750

₹ 900

₹ 150

Pre-payment fees of 2% of the outstanding principal amount

₹ 10,000

₹ 1,500

₹ 1,800

₹ 300

 

As you can see from the example above, with GST you are paying ₹ 150 extra on the processing fee and ₹ 300 extra on the pre-payment charges, which are negligible amounts. In conclusion, GST has a minuscule effect on personal loans. 

 

The tax percentage has increased from 15% to 18% (3% increase), but it does not affect the EMI amount. GST is not levied on the loan repayment. It only applies to the services that the bank provides to the borrower for processing the personal loan. GST does not affect the loan repayment and the personal loan interest rate.

 

Logic of GST split

Please follow a simple logic of comparing customer communication state ID with his loan branch state ID. A customer could have multiple loans and different communication address. We must always identify GST transaction basis the loan record and customer address in that loan record.

  • If state of branch and customer address is same, then please check if state is UT or non-UT. If UT, then it should be UTGST & CGST heads of that should get credited.

  • If state of branch and customer address is same, then please check if state is UT or non-UT. If non-UT, then it should be SGST & CGST heads of that should get credited.

  • If state of branch and customer address is not same, then it should be IGST head that should get credited.

  • GST amounts should always be rounded up 0 decimal places

Types of GST

The four different types of GST are given below:

  1. Central Goods and Services Tax : CGST is charged on the intra state supply of products and services.

  2. State Goods and Services Tax : SGST, like CGST, is charged on the sale of products or services within a state.

  3. Integrated Goods and Services Tax : IGST is charged on inter-state transactions of products and services.

  4. Union Territory Goods and Services Tax : UTGST is levied on the supply of products and services in any of the Union Territories in the country, viz. Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh. UTGST is levied along with CGST

Know the GSTIN - GST Identification Number

A 15-digit distinctive code that is provided to every taxpayer is the GSTIN. The GSTIN will be provided based on the state you live at and the PAN. Some of the main uses of GSTIN are mentioned below:

  • Loans can be availed with the help of the number.

  • Refunds can be claimed with the GSTIN.

  • The verification process is easy with the help of the GSTIN.

  • Corrections can be made.

 

Billing Info of office and Client

Billing info of office and client will consist of GST number and Billing address which is mandatory to fill at the time of office creation and Client creation under the office.