GST on No Cost EMI: Rates, Applicability & Credit Card Impact

No Cost EMI looks like it is free, but actually, some extra charges are there. Many people don’t know about the GST chargeable. In this blog, we will explain in an easy way how GST works on No Cost EMI and how much you really pay.

What is No Cost EMI and How it Works?

No Cost EMI means you can buy something today and pay the full amount in small parts every month, without paying anything extra. The product price stays the same. There is no added interest like in regular EMI.

If the cost price of the phone is Rs.24,000, then you can choose to pay Rs.4,000 per month for 6 months. The total remains Rs.24,000. No extra charge is shown on the paper.

But how is this possible?

Normally, in regular EMI, you pay interest. So the total amount becomes more than the product price. In No Cost EMI, that interest is not charged from you directly. Instead, the seller or brand adjusts it in the backend.

Here’s how:

• The seller gives a discount equal to the interest that would have been charged.
• That discount is used to cover the cost of interest to the bank or finance company.
• So you pay the product price in parts, and it looks like zero interest.

You're paying in easy monthly parts, so it feels hassle-free. That’s why it's common for big buys like phones or appliances.

But it’s not always truly free—charges like GST still apply. Let’s understand the concept. 

Is GST Applicable on No Cost EMI?

Yes, GST is applicable on No Cost EMI—but not in the way most people think. While the name suggests that there is no extra cost involved, the reality is slightly different when you look closely at the payment structure.

In a no-cost EMI scheme, the bank still charges interest on the transaction. However, the seller gives a discount that covers this interest, so the total amount you pay appears to be the same as the product price. But here’s the key detail: even though the seller absorbs the interest, the interest itself is not exempt from GST.

According to current GST rules, an 18% tax is applied on the interest component of the EMI. This means the bank charges GST on the interest, and this cost is borne by the customer—not waived or absorbed. This is especially common in credit card-based EMI plans, where interest is always treated as a taxable financial service.

So, while the No Cost EMI model removes the burden of interest by adjusting the selling price, it does not remove the GST liability. This is why customers often see a small extra amount in their credit card bill despite opting for a "No Cost" plan.

GST Charges on No Cost EMI: Breakdown of Costs

Let’s break this down with a real-life example you can relate to.

Scenario:

• You buy a smartphone worth Rs.30,000
• You choose a 3-month no cost EMI option
• So, you expect to pay Rs.10,000/month with no extra cost

But here’s what actually happens when you look closely.

What’s going on behind the scenes:

• Bank charges the interest (here, Rs.734.66 total over 3 months).
• Seller gives a discount equal to this interest.
• But GST at 18% on the interest (Rs.132.24) is not waived.
• You pay this GST, not the seller.

Breakdown of Monthly Cost:

GST on Credit Card no cost EMI Interest

In a no cost EMI through credit card, the bank adds interest. The seller gives a discount to cover it. But GST on that interest doesn’t go away.

The bank adds 18% GST on the interest part, and you pay it. This GST is not part of the discount and is not visible in the product price. It gets added to your monthly EMI and increases your total cost.

This happens because the GST law treats credit card EMI interest as a service. It is not tax-free.

Want to know the full rule? Read this GST on credit card EMI.