A Guide to GST on Credit Card and EMI Payments

In India, the Goods and Services Tax (GST) applies to various aspects of credit card usage. When you use a credit card to purchase goods or services, the price you pay includes GST, which the merchant collects and remits to the government.

Additionally, fees charged by credit card issuers, such as annual fees, late payment fees, and interest on outstanding balances, are subject to GST. This tax is usually reflected in your credit card statement, providing transparency on the tax component of your expenses. 

For international transactions, GST may also apply to currency conversion fees or foreign transaction fees. It's important for cardholders to review their statements and understand the terms and conditions of their credit card to fully grasp how GST affects their credit card expenses in India.

Is there GST on credit card fees?

In India, Goods and Services Tax (GST) is not directly levied on credit card fees themselves. However, GST is applicable on the services provided by banks or financial institutions related to credit cards.

The fees charged by banks or financial institutions for various credit card services, such as annual fees, late payment fees, cash advance fees, and balance transfer fees, are subject to GST. These fees are considered as services provided by the bank or financial institution to the cardholder, and thus GST is applicable.

As per the GST regime, financial services including banking and other related services are taxed under the 'Reverse Charge Mechanism' (RCM). Under RCM, the liability to pay GST is on the recipient of the service rather than the provider. In the case of credit card fees, the cardholder is considered the recipient of the service, and therefore, they are liable to pay GST on the fees charged by the bank or financial institution.

The applicable GST rate on financial services, including credit card fees, is currently set at 18%. However, it's essential to note that GST is not directly mentioned on the credit card statement. Instead, it is included in the total amount charged by the bank or financial institution for the services rendered.

In summary, while there is no GST specifically on credit card fees, GST is applicable on the services provided by banks or financial institutions related to credit cards, including the various fees charged, under the Reverse Charge Mechanism.

GST in credit card EMI payments

Goods and Services Tax (GST) applies to credit card Equated Monthly Installment (EMI) payments in India. When a purchase is made using a credit card and converted into EMI, GST is levied on the interest component of the EMI.
 

Here's a detailed explanation:

Interest Component: When a credit card transaction is converted into EMI, the bank or financial institution charges interest on the outstanding amount. This interest component is subject to GST.

GST Rate: The applicable GST rate on the interest component of credit card EMI payments is currently set at 18%. This means that 18% GST is charged on the interest portion of each EMI payment made by the cardholder.

Calculation: The GST amount is calculated based on the interest charged by the bank or financial institution on the EMI. For example, if the interest charged on a particular EMI installment is Rs. 500, then the GST amount would be 18% of Rs. 500, which is Rs. 90.

Inclusion in EMI: The GST amount is typically included in the total EMI amount payable by the cardholder. This means that the cardholder pays the EMI amount inclusive of GST to the bank or financial institution.
Billing Statement: While the GST amount on credit card EMI payments is not separately mentioned on the cardholder's billing statement, it is included in the total EMI amount payable.

In summary, GST applies to the interest component of credit card EMI payments at the rate of 18%. The GST amount is calculated based on the interest charged by the bank or financial institution and is included in the total EMI amount paid by the cardholder.

Credit card GST charge vs service charge

Why GST is applied if I have an EMI credit card option ?

Goods and Services Tax (GST) is a value-added tax that is applied to the supply of goods and services in many countries. It is charged at each stage of the production and distribution process and is ultimately borne by the end consumer. 

Here’s why GST is applied even if you use an EMI (Equated Monthly Installment) option on your credit card:

Nature of GST: GST is levied on the transaction value of goods and services. It is a tax on the consumption of goods and services, and it is collected by the seller on behalf of the government.

Purchase Transaction: When you make a purchase using your credit card, GST is applied to the total transaction amount at the point of sale. This is because the seller is required to collect GST on the goods or services sold, irrespective of the payment method.

EMI Payment Option: Choosing to pay via EMI does not change the fact that you are purchasing goods or services. The EMI option is merely a financial arrangement between you and the credit card issuer to spread the cost of the purchase over a period of time. It does not affect the transaction value on which GST is calculated.

Immediate GST Liability: The seller needs to account for GST immediately upon sale. Therefore, even if you opt for EMI, the seller must remit the GST to the government based on the full transaction value at the time of sale.

Credit Card Issuer: The credit card issuer may charge interest or processing fees for providing the EMI facility, and these charges may also attract GST. However, this is separate from the GST applied to the original purchase.