Are Gold Loan Repayments Affected by GST? Know the Facts

GST on gold loans does not apply to the repayment or interest component of the loan, but it is levied on processing fees and some other service-related charges. This blog explains exactly where GST affects your borrowing, details key GST rates on gold and loan charges, and shows you how to calculate the total cost.

Is There Any Impact of GST on Gold Loan Repayments?

No, your Gold Loan repayments aren’t affected by GST (Goods and Services Tax) because the principal repayment and interest paid to the lender are exempt. Loan interest is considered compensation for lending money, not a taxable service under GST regulations. So, you don’t pay goods and services tax on your monthly EMIs or on the principal amount, nor on your pledged gold.

However, GST on gold loans is present through several other charges, influencing the total amount you pay to the lender. The rate is typically at 18%, and includes:

• Processing Fees: Most NBFCs and lenders levy an 18% GST on processing charges.

• Valuation Charges: If the lender conducts a valuation for your gold, GST applies here as well.

• Documentation Fees: GST is charged whenever administrative or documentation fees are collected during loan sanction.

• Other Service Charges: Any service-related charges, such as legal verification or loan renewal fees, usually attract the same 18% GST.

Most lenders include GST in their disclosed fees for clarity, ensuring you see an all-inclusive figure when reviewing your loan document.

1 Gram Gold GST Rate

The concept of the 1 gram gold GST rate could cause confusion as to whether there's any GST required for your pledged gold by gram. Note that this rate, which is GST at 3%, applies to new gold jewelry purchase transactions, not to the Gold Loan itself.

Calculating GST on Your Gold Loan

Calculating the GST applicable to your Gold Loan is straightforward, since it is only applied to service-related charges.

Here’s how to calculate the GST on common fees:

• Identify the charge: For example, if the processing fee is ₹1,000.

• Apply 18% GST: Multiply ₹1,000 x 0.18 = ₹180 GST.

• Total charge payable: Add base fee and GST (₹1,000 + ₹180 = ₹1,180).

Suppose your Gold Loan involves multiple service charges; repeat this step for each charge and sum the totals. Many Gold Loan providers offer a gold loan calculator to help you simulate loan eligibility and repayment plans. These calculators usually factor in GST where relevant, making your financial planning easier.

To Conclude

GST on Gold Loans can add to the overall cost of acquisition through processing and service charges, but the monthly repayments and interest themselves remain outside GST’s scope. Knowing the GST rates and using a gold loan calculator helps you assess your true financial outlay and avoid surprises. Always review fee breakdowns before committing to any Gold Loan.

If you are considering a Gold Loan, Poonawalla Fincorp provides an easy-to-apply Gold Loan with transparent fee disclosures, ensuring you know exactly what to expect from start to finish.

FAQs

How is GST calculated on Gold Loans, and does it differ from buying gold in India?

GST on Gold Loans applies only to service-related charges, such as processing or valuation fees. It is not charged on the principal amount or interest. On the other hand, when considering gold prices at purchase, the tax is levied on the value of the gold, i.e. usually at 3% plus applicable charges depending on the transaction, the total being subject to GST. Loan repayments will still be GST-free.

Does purchasing digital gold attract different tax treatment compared to selling digital gold?

Yes. Digital gold purchases are subject to GST under the platform's rules, while sales may result in capital gains tax implications depending on the timing and manner of your exit. Gold Loan repayments are not subject to these tax conditions, as interest is still exempt from GST.

Are the charges for gold jewellery making taxed separately under GST?

Yes. Gold jewellery-making charges typically attract 5% GST when itemised by the jeweller. This is separate from the 3% GST on the gold’s value. These charges have no impact on Gold Loan interest, which remains GST-free.

How does GST apply when purchasing gold from a GST-registered entity or registered dealer?

When purchasing gold from a GST-registered entity or registered dealer, GST on the gold value is 3%, while other service components may attract 5% or 18%. None of these taxes applies when repaying the Gold Loan itself; only the lender’s service fees incur GST.

Is GST applicable to gold ornaments used for business purposes?

If you use gold ornaments for business purposes, GST applies when purchasing them, and you may be able to claim input tax credit in specific cases, but this does not affect GST on Gold Loans. Loan-related charges remain taxable at 18% regardless of the business use of the gold itself.

How much GST is applicable when importing gold, and does it affect the Gold Loan valuation?

Under GST, gold imports attract GST, along with basic customs duty, depending on the product type and applicable customs notifications. However, these import-related taxes do not alter the GST you pay on Gold Loan fees. Your loan valuation depends only on purity, weight, and the current market price.

Does buying new gold jewellery affect GST when taking a Gold Loan later?

The GST paid when buying new gold jewellery does not affect the GST rules for Gold Loans. Lenders base your eligibility on purity and weight, and GST only applies to loan-related service fees at the time of borrowing, not to past jewellery purchases.

Do GST rules differ for gold coins, physical gold, and other gold investments when compared to Gold Loans?

Yes. When you buy gold coins or other forms of physical gold, GST applies at 3% on the gold’s value, plus additional GST on gold-making charges, depending on the transaction. In contrast, certain gold investments, such as digital gold or market-linked products, may be subject to different tax treatments, such as capital gains tax rather than GST.