GST on Credit Card and Credit Card EMI

Goods and Services Tax (GST) was introduced in India in 2017 and since then the government has introduced significant modifications to the GST rate of credit cards. For example, credit card EMIs are now subject to 18% GST, a 3% rise from the previous 15% service tax.

In this article, we talk more about GST on credit card EMI, and GST on credit card interest. Read along!

Scope of taxation on financial transactions, including credit cards. 

Credit cards were just one of many financial aspects that were significantly impacted by the GST rollout. Here are some major points explaining the impact of GST on credit card transactions:

• The GST rate for credit card transactions increased from 15% (service tax) to 18%.
• GST is charged only once on credit card transactions, regardless of the payment method (cash or card).
• Late payment penalties on credit card bills now attract an 18% GST instead of the previous 15% service tax.
• Utility bill payments made through credit cards remain unaffected by GST, just as they were not subject to service tax before GST implementation.

GST rate on credit card transactions or GST on credit card EMI with SAC code

The new GST on credit cards applies to various aspects of credit card services, including interest on credit card EMIs, processing fees, late payment charges, annual fees, over-limit charges, and any other fees or charges imposed by your credit card provider.

Here is a tabular representation of credit card’s GST charges and its SAC code:

Furthermore, the 18% GST on credit card EMI payments applies to both the EMI interest component and the processing fee. And if you miss your EMI payments, the same amount of GST will be added to your credit card interest rate. 

Availability of ITC claims

Input tax credit (ITC) is a mechanism through which businesses can reclaim the taxes paid on purchases of goods or services when paying taxes on the output.

When it comes to GST on bank charges, the provisions of section 17(5) of the CGST Act do not block the availability of ITC. This means that you can claim ITC for the GST paid on bank charges without any hindrance.

Although, to claim this ITC under the CGST Act, you must meet the following conditions:

• Possessing a tax invoice, debit note, or any other valid tax-paying document
• Actually receiving the goods or services for which ITC is being claimed
• The tax on those goods or services must have been paid to the government, either in cash or through ITC by the bank for the bank charges
• Submitting the required return under Section 39 of the CGST Act

Advance rulings on GST on credit cards 

An advance tax ruling is a written explanation of the tax legislation. It is issued by tax authorities to businesses and individuals who are unsure about specific regulations.

Here is an advance ruling related to GST on credit cards:

Facts of the case:

The case involves ICU Medical India LLP, a subsidiary of ICU Medical Inc. The holding company provided credit cards to employees of the subsidiary for business-related expenses. The subsidiary would then claim reimbursement for these expenses from the holding company.

Case:

The question raised was whether GST applies to such reimbursements or not.

Ruling:

The Tamil Nadu Appellate Authority for Advance Ruling (AAR) ruled that GST is applicable on the reimbursement of expenses to the holding company. The AAR stated that the payment made by the holding company on behalf of the subsidiary is considered advance consideration for the services provided by the subsidiary company. Therefore, the holding company's provision of credit services to the Indian subsidiary falls under the definition of 'Supply' under GST.

Additionally, the AAR concluded that these services qualify as import of services, making the subsidiary liable to pay 18% GST on the reimbursements.

Frequently Asked Questions

• Can I pay GST by credit card in India?

          Yes, you can pay GST through credit cards, among other payment methods.

• How is GST calculated on merchant fees?

Yes, unless your tax invoice states otherwise, all merchant fees and charges are subject to GST.

• How to calculate GST on credit card EMI?

          Well, you don’t need to calculate that because all credit cards incur an 18% GST.