How will GST Affect Home Loans?
Jul 17, 2017 Home Loan
Since GST has some into full force, there seems to be a general perception that the home loans will be more costly now. The increased rate of 18 percent from 15 percent for the goods and service tax rendered by the lender hints the buyers that the home loans rates will go up. But it isn’t as straightforward as it seems to be.
Before we start to discuss the impact of GST on home loans, let us first discuss the components that will be affected by GST. The main cost of taking a home loan is the payment of interest on the money borrowed. Since there is no service tax on it, hence no GST will be applicable to it. This cost will not change. Stamp duty charges will not be included for the same since they don’t have any service tax applicable to them. Hence, it is free from GST as well.
However, there are various charges that are levied on the lender when you take the home loan. First is the processing fee that is paid at the time of taking the loan. At present, it is 15 percent but it will increase 3 percent post GST. This is a slight increase and is a one time payment. This will increase the cost of your home very negligible. The lenders may also recover the charges like advocate fees, valuation charges etc in connection with the home loan, which will increase appropriately.
If the buyer decides to pre pay the home loan, then under the fixed rate of interest you might have to pay some amount for the same. For the floating rate of interest, it will be free of any charges. The lender may charge you in case of EMI default, either due to the return of the cheque or ESC return.
How are lenders affected by the GST?
Lenders were registered as the modes that render services. Hence they were entitled to take only the input credit for the services availed by them but were not able to take any credit for the VAT paid by them. With GST they will be able to enjoy more tax benefits.
GST has increased the scope of reverse charge mechanism. The lenders who are now registered under GST will have to pay for the goods and services like services of advocates etc.
Under GST all the suppliers are supposed to pass the benefit of the reduced rates to the input supplies, customers and clients in the form of reduced rates. It is impossible to find how GST will quantify their costs. Hence, there isn’t any window that they will reduce their rates but an increase can be expected.
Before we start to discuss the impact of GST on home loans, let us first discuss the components that will be affected by GST. The main cost of taking a home loan is the payment of interest on the money borrowed. Since there is no service tax on it, hence no GST will be applicable to it. This cost will not change. Stamp duty charges will not be included for the same since they don’t have any service tax applicable to them. Hence, it is free from GST as well.
However, there are various charges that are levied on the lender when you take the home loan. First is the processing fee that is paid at the time of taking the loan. At present, it is 15 percent but it will increase 3 percent post GST. This is a slight increase and is a one time payment. This will increase the cost of your home very negligible. The lenders may also recover the charges like advocate fees, valuation charges etc in connection with the home loan, which will increase appropriately.
If the buyer decides to pre pay the home loan, then under the fixed rate of interest you might have to pay some amount for the same. For the floating rate of interest, it will be free of any charges. The lender may charge you in case of EMI default, either due to the return of the cheque or ESC return.
How are lenders affected by the GST?
Lenders were registered as the modes that render services. Hence they were entitled to take only the input credit for the services availed by them but were not able to take any credit for the VAT paid by them. With GST they will be able to enjoy more tax benefits.
GST has increased the scope of reverse charge mechanism. The lenders who are now registered under GST will have to pay for the goods and services like services of advocates etc.
Under GST all the suppliers are supposed to pass the benefit of the reduced rates to the input supplies, customers and clients in the form of reduced rates. It is impossible to find how GST will quantify their costs. Hence, there isn’t any window that they will reduce their rates but an increase can be expected.
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