Let us consider the example of a customer buying a mobile phone worth ₹15,000 on No-Cost EMI on a 3-month EMI period. The bank charges 15% interest per annum. Additionally, the bank may charge the customer GST on the interest.
Cost of mobile phone: ₹15,000 Tenure of No Cost EMI: 3 months Interest Rate: 15% per annum Interest Amount: ₹367.33 No-Cost EMI Amount: ₹5,000 Actual loan amount charged on customer's card (Cost of Mobile Phone minus Interest Amount): ₹14,632.67
The No-Cost EMI calculation is given below:
Outstanding loan at the start of the month
Loan Principal Paid
Outstanding principal at the end of the month
GST on Interest at 18%
EMI + GST
Customers Pay GST on Interest
In a no-cost EMI, you provide a discount on the principal. The monthly installment paid by the customer consists of this principal and the interest. As the issuing banks still charge the interest, the customer will be charged the GST on interest by the bank.