The Indian government has levied Goods and Services Tax (GST) on most services. The rate of GST applicable in services is 18% of the taxable value. Credit Cards have always remained a popular financial instrument in India. You can use your Credit Card for almost anything. Once you receive the Credit Card bill, you have to pay it back so that no interest is charged. However, are you aware of the implication of GST on your Credit Card?
GST on Credit Card
Banks charge GST on certain Credit Card services. GST is applicable on processing fees and also on the interest charges of your Credit Card. Further, any transaction charges by the bank shall also be subject to GST.
Normally, GST on Credit Card bill will be applicable on the following charges:
- Late payment charges
- Interest
- Foreign exchange markup fees
- Membership fees, annual fees or joining fees
- Any other fees charged by the Credit Card provider
GST vs Service Tax
Service Tax was the erstwhile indirect tax law on the services. It was repealed and subsumed by the GST. Service Tax was charged at 15% on the service value whereas the GST applicable is at 18%. GST is applicable at 18% on the merchant fees. Therefore, if the merchant fee is ₹1000, then GST will be 18% on ₹1000 i.e., ₹180.
Myths about the impact of GST on Credit Cards
#1: GST increases your Credit Card bills
Reality: GST is only applicable to the charges charged by Credit Card companies or banks. If you regularly pay your bills on or before the due date, then the GST charges on your Credit Card will be minimal.
# 2: You will pay GST twice on your utility payments through Credit Cards
Reality: GST will be levied only once on your utility bill payments. The government has clarified that there won’t be double taxation of GST on utility bill payments irrespective of the mode of payment.
#3: GST does not apply to Credit Card interest
Reality: While GST is not applicable on interest on loans, it is applicable on Credit Card EMI payments. It is applicable to both the EMI interest component as well as processing fee charged when converting a transaction into EMI. This GST amount is added to your monthly Credit Card due.
Advance rulings on GST on Credit Cards
In a case on GST on loan on Credit Card, the Calcutta High Court has held that the loan cannot be regarded as a service. Therefore, it should be treated as a standard loan that is exempt under GST. Being a Credit Card holder was merely an eligibility criterion. The loan facility and interest charged thereon is a separate transaction that cannot be regarded as a Credit Card facility.
Also Read: 14 different types of Credit Card charges & fees
FAQs
If I pay bills using Credit Cards, will GST be charged twice?
No. You will be not be charged GST on your Credit Card transaction, unless it is converted into an EMI.
Can I pay GST by Credit Card in India?
Yes you can pay GST using your Credit Card and other payment methods such as NEFT, RTGS, etc.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
