How GST on credit card EMI is calculated (with worked example)

When you convert a credit card purchase into EMIs, your statement shows a GST charge alongside the instalment. Many people assume it is GST on the whole EMI. It isn't. GST is charged on two things only: the interest inside each EMI, and the processing fee. This guide shows how each is worked out, month by month, with a worked example you can check against your own statement.

Why credit card EMI interest attracts GST

Interest on loans is normally exempt from GST. The exemption is in Sl. No. 27(a) of Notification No. 12/2017-Central Tax (Rate), and it specifically leaves out "interest involved in credit card services". So the interest on a credit card EMI is taxable, while the interest on an ordinary personal, home or car loan is not.

This holds even for a no cost EMI, where the merchant or brand pays the interest through an upfront discount. The bank still earns interest on the EMI loan, so GST on that interest still appears on your statement.

The processing fee is a fee, not interest, so it is taxable too. The notification's definition of interest leaves out "any service fee or other charge", and CBIC Circular No. 102/21/2019-GST confirms that such fees and charges on a loan "will not be exempt". That's true of fees on any loan, not just card EMIs.

What GST is charged on, and what it isn't

Part of the plan	GST?
Interest part of each EMI	Yes, every month
Processing fee	Yes, once
Principal part of each EMI	No
The whole EMI	No: only its interest part

GST on financial services is 18%: 9% central tax under Notification No. 11/2017-Central Tax (Rate) (heading 9971) plus 9% state tax. Our calculators use 18% by default. Your statement shows the GST your bank applied.

The calculation, step by step

A card EMI is a small loan on a reducing balance. Each month:

Interest this month  = balance at start of month × (annual rate ÷ 12 ÷ 100)
GST this month       = interest this month × GST rate
Principal repaid     = EMI − interest this month
Balance next month   = balance − principal repaid
GST on fee           = processing fee × GST rate      (charged once)

Because the balance falls every month, the interest part of the EMI, and the GST on it, is largest in month 1 and shrinks after that. Your EMI stays the same, but the GST line on your statement gets smaller each month.

For a standard EMI, the bank calculates the EMI on the full purchase amount using the usual EMI formula. For a no cost EMI, the EMI is simply the price divided by the number of months, and the bank lends a slightly smaller amount so that those equal EMIs include its interest. The merchant covers the gap with an upfront discount.

Worked example: no cost EMI on a ₹60,000 phone

Assumptions, for illustration: purchase price ₹60,000, 6 months, the bank's EMI interest rate 15% a year, processing fee ₹199, GST 18%.

The EMI. Price ÷ months = ₹10,000.

The loan behind it. For 6 EMIs of ₹10,000 to repay a loan at 15% a year, the loan has to be ₹57,460. The merchant's discount of ₹2,540 covers the difference, and it equals the interest built into your EMIs.

Month 1. The interest part of the first EMI is ₹718, so GST on it is ₹129. The rest of the EMI repays principal.

The full schedule:

GST on interest falls from ₹129 in month 1 to ₹22 in the last month, and adds up to ₹457.

The processing fee. GST on the ₹199 fee is ₹36, so the fee costs ₹235 in all. It is charged once, when the EMI is set up.

Total extra cost. GST on interest plus the fee and its GST: ₹692. You pay ₹60,692 for a ₹60,000 phone.

The same purchase as a standard card EMI

If the merchant doesn't offer a no cost EMI, the bank charges interest on the full ₹60,000. The EMI rises to ₹10,442, you pay the interest yourself, and GST applies to that larger interest:

The standard EMI costs ₹3,364 more than paying upfront, against ₹692 for the no cost version. The effective APR row turns each extra cost into a yearly rate, using the internal-rate-of-return method RBI illustrates for loan APRs in its Key Facts Statement circular: 19.1% for the standard EMI, 4.0% for the no cost EMI.

Checking it against your statement

• Find the interest part. If your statement or your bank's app shows the interest and principal split of each EMI, multiply the interest by the GST rate and compare it with the GST line. If it doesn't, ask your bank for the EMI schedule.
• Expect the GST to fall. If the GST charge is the same every month, it may include something else, such as GST on a fee. Ask your bank for the breakdown.
• Look for the fee once. The processing fee and its GST should appear on one statement only.
• Small rounding differences are normal. Your bank may round each month's interest and GST; our figures are rounded only for display.

Common mistakes

• Taking GST on the whole EMI. On a ₹10,000 EMI that would be wildly too high. GST applies only to the interest inside it.
• Forgetting the fee's GST. The fee you see in the offer is usually before GST.
• Assuming no cost means no GST. The merchant pays the interest, not the GST on it.
• Comparing EMIs instead of total cost. Two plans with similar EMIs can have very different extra costs once interest, GST and fees are added. Compare the total you pay, or the effective APR.

Calculate your own

Enter your price, tenure, your bank's EMI interest rate and processing fee in the no cost EMI & credit card EMI calculator. It shows the discount, the GST on interest in month 1 and in total, the fee with GST, your total extra cost and the effective APR, for both no cost and standard EMIs. The methodology page shows every formula.

If you're deciding whether a no cost EMI is worth taking at all, read Is no cost EMI really free?. To weigh a card EMI against a personal loan, see Credit card EMI vs personal loan.