Not one day goes by without hearing heated debates on GST. Now, that GST is here to stay, it’s time to look at its impact on the end consumers, especially those looking at taking personal loans or home loans.
Let’s get the Basics right: What is GST?
GST or the Goods and Services Taxes will replace several central and state levied taxes to make for a unified taxation system. It will certainly help customers in some ways. On the contrary, the end user will also have to bear the weight of the additional burden in other areas.
One such area that is likely to get more expensive for consumers is the banking and financial sectors.
Understanding GST
In our country, there are two types of taxes: direct and indirect. A direct tax is where you pay the tax directly to the government like the income tax. The second category is where you pay the tax to another person who passes it onto the government. Luxury tax, excise duties, value added tax, are a few examples of indirect taxes.
With GST in place, indirect taxes will become streamlined. So instead of paying several different types of taxes, you pay only one tax that will constitute all these indirect taxes. This tax is inclusive of both goods and services, hence the name GST.
What will be the impact of GST on Loans?
GST will affect almost all industries, and the banking sector is no exception. It will ease the burden of business owners, and for the end consumer, everyday goods will become cheaper. On the contrary, luxury goods will be more expensive.
Now, here comes the question? Do loans qualify as luxury items or are they regular day to day necessities?
Since banking is mostly about services, loans and other products will become costlier.
According to the GST structure, the tax will be applicable for all the fees a user pays to the bank when availing a loan. The processing fees, transaction fee, legal enquiry fee all are taxable. Currently, the rate is 14.5%. With GST, the rates are likely to reach up to 18% – 20%. This is an additional burden for the borrower. Also, insurance premiums and banking charges also come under this new taxation. This will make availing loans expensive for the end user.
Apart for securing loans, credit card usage will also become more expensive. You are likely to incur a service tax when you swipe your card. However, there will be occasions when there are no service/processing fees. Using a card on such occasions will be beneficial to the end user.
Also, the interest charged for late payments are likely to attract additional tax. This will make borrowing on a credit card costlier than what it is today.
The Bottom Line
Once GST comes into practice, you will end up paying more taxes if you aren’t aware of all the nuances of this new taxation. So, read up, consult your friends and other experts and stay in the know-how to make smart financial decisions for taking low rate personal loans online.