GST on Home Loan

When conside­ring buying a house and obtaining a home loan, it become­s crucial to understand the potential impact of GST on your loan. This article­ aims to provide you with comprehensive­ insights on the applicability of GST on home­ loans. 

Applicability of GST on home loan

When you apply for a home loan, there are various charges, such as processing fees and legal costs, which are typically deducted by banks, housing finance companies, and other financial institutions. Previously, these charges were liable to service tax. However, the introduction of GST has brought about a significant change in the taxation structure. The expenses that were previously categorised under service tax are now governed under GST.

In India, GST will not apply to the home loan value. However, it applies to the processing charges and other fees imposed by the bank or financial institution to disburse the home loan.

Home loan processing charges HSN code and GST rate

Processing fees and other charges levied on disbursing home loans fall within the category of financial and related Services, identified by the HSN code 9971 and subjected to a GST rate of 18%. 

The following is an example of how GST is levied on the processing fees for a home loan:

GST on other loan-related charges

GST on home loans also applies to various associate­d costs. These costs include prepayment charges, partial prepayme­nt fees, and document handling charge­s. They can be eithe­r a fixed amount or a percentage­ of the loan. For example, in the case­ of a fixed-rate home loan, 18% GST will be­ imposed on a prepayment pe­nalty of 2%.

Is ITC available on home loan processing charges?

Input tax credit (ITC) can be availed only on services used for business purposes. Home loans are typically taken for personal home purchase/construction and not for business use, hence ITC cannot be claimed. 

Frequently Asked Questions

Do all lenders impose a processing fee on home loans?

Yes, most lenders charge a processing fee on various types of loans, including home loans. Some lenders may refer to it as administrative fees. 

How is GST paid to the loan provider?

GST is usually paid to the loan provider along with the processing fee, often through a cheque.

Is GST applicable to late payment charges on home loans?

Yes, GST is applicable to late payment charges on home loans, whether a fixed fee or a percentage of the overdue amount.