From July 1, all the financial services have come under the ambit of Goods and Services Tax (GST). Following this, the new rates have marginally increased from the previous tax system. Since the implementation of the new tax system, many rumours and apprehensions have surfaced on social media.
Let us do a reality check.
Rumour mongering against GST
You may have received a message recently on social media that stated that you will have to pay GST twice if you pay your utility bills with your Credit Card. There was another rumour doing the rounds that said, “If you use your Credit Cards post-GST, then you’ll have to pay tax on the whole billed amount.”
Don’t worry! These are just rumours and you must not pay heed to such messages. After the rumours went viral, the Government issued a clarification and asked people to refrain from circulating these messages. Revenue Secretary Hasmukh Adhia tweeted, “A wrong message is doing rounds on social media that if you make payment of utility bills by Credit Cards, you will be paying GST twice. This is completely untrue. Please do not recirculate such message without checking it with authority.”
It has been clarified by the government and financial experts repeatedly on several platforms that GST would be imposed only once and it would be charged in a similar way as it used to be done in the previous tax system. Only the tax rate has been increased to 18%. It was 15% under the service tax system.
How much you pay on Credit Card under GST?
A lot of people have confusion about how GST will be applicable on Credit Card bills. In terms of applicability, there is no difference between GST and its predecessor ‘Service Tax’ (ST).
As service tax was not calculated on the retail transactions, similarly there won’t be any GST imposed now. Service tax was charged at 15% on card fees, EMIs interest, late fees, processing charges, etc. Similarly, now GST would be applicable on all these items instead of service tax.
Let’s say, if you have purchased something on a 6 month EMI using your Credit Card. The total interest you pay in 6 months is Rs. 532, whereas the EMI processing fee is Rs. 150. Based on these assumptions, let’s check out the difference between service tax and GST implication on this transaction:
| Service Tax Vs GST implication on Credit Card EMI | |||
| Detail | ST @15% | GST @ 18% | |
| Loan Amount | Rs 10,000 | ||
| Interest Rate (Pa) | 18% | ||
| EMI Tenure | 6 months | ||
| Interest paid in 6 months | 532 | 79.8 | 95.76 |
| Processing charges | 150 | 22.5 | 27 |
| Total tax | 102.3 | 122.76 | |
| * All figures are assumed | |||
As it is clear from the table, you need to pay Rs. 20.46 extra under the GST format as compared with ST. The increase in tax payment is not very large.
The only difference with GST is that the tax rate will increase from 15% to 18%. Since the charges are not calculated on the amount you utilise using your Credit Card, but on the interest rate applicable, the implication of extra tax under GST would be minimal.
Finally, if you are getting confused by social media messages, then talk to your Credit Card company to get more information to understand the difference between GST and service tax. While you read more about GST, stay away from rumours that may lead you to commit a financial mistake.
(The writer is CEO, BankBazaar.com)
I was so fed up with the GST charges levied on my monthly bill, i settled my card once in for all and closed it.. Happy that i don’t need to worry about the GST or the calculation
Thank you for the nice article
Hi Jason, We’re glad you liked our article. Keep reading our blog for more insights into the world of finance. Cheers, Team BankBazaar.
Thanks by explaining with an example..really helps.
Hi Ganesh, You’re welcome. Cheers, Team BankBazaar
Hi Adil,
Few things to know are, Is IGST applicable in PL EMIs every month? My ICICI bank is charging the same it seems.
Hi Shankar, GST doesn’t have an impact on Personal Loan EMIs. However, it may affect one-time fees such as processing fees, prepayment fees, late payment charges, etc. Cheers, Team BankBazaar
Hi Shrikant,
We suggest you write to your Credit Card company about this.
Cheers,
Team BankBazaar
Hi,
Basis on my credit card the bank has offered me a loan. The bank is now charging 18% GST on the interest component of the cash loan EMI. Please let me know that this is as per the guidelines of the government, if so under which category. Please help
Hi Satish,
It is true that you have to pay GST for loans, even loan against credit cards. This will come under banking services.
Cheers,
Team BankBazaar
So, doesn’t GST trying to put more nails on the coffin of a person who is financially falling apart ????? Because the one who takes a credit card loan must be a person who has no other way and his liability is further extended by adding GST on the interest component thereby more and more financial woes which ends up taking his life where he doesn’t have to pay either GST or the EMI itself 🙂 🙂 🙂 🙂 🙂
Hi Sajith,
It is true that you have to pay GST for loans, even loan against Credit Cards. This will come under banking services.
GST has been put in place by the Government to simplify the tax structure. While some goods and services are likely to pinch the wallet of consumers, others may provide the much-needed financial relief. Did you know that new, slashed GST rates came into effect on January 1, 2019, bringing down prices of certain commodities? Hope this helps!
Cheers,
Team BankBazaar