No cost & credit card EMI calculator: methodology

Standard EMI

The full purchase amount A is converted into a loan at the EMI interest rate:

EMI = EMI(A, rate, months)
Extra cost = total interest + GST on interest + processing fee + GST on fee

No-cost EMI

The interest is covered by an upfront discount, so your EMIs add up exactly to the price:

EMI              = A ÷ months
Amount financed  = present value of those EMIs at the EMI rate
Discount         = A − amount financed  (= total interest)
Extra cost       = GST on interest + processing fee + GST on fee

GST

GST is applied each month to the interest part of that month's EMI, and once to the processing fee. The rate defaults to 18% and is editable.

Why GST applies:

• Interest on a card EMI is taxable. Sl. No. 27(a) of Notification No. 12/2017-Central Tax (Rate) exempts services of extending loans "in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services)". The bracketed exclusion is what makes card EMI interest taxable. Interest on an ordinary personal, home or car loan stays exempt, so our loan calculators never add GST to interest.
• Fees and charges are taxable on any loan. Clause 2(zk) of the same notification defines interest so that it "does not include any service fee or other charge". CBIC Circular No. 102/21/2019-GST (paragraph 6) confirms that service fees and other charges levied on a loan don't qualify as interest "and accordingly will not be exempt".
• The rate is 18%. Financial and related services under heading 9971 carry 9% central tax under Notification No. 11/2017-Central Tax (Rate) (Sl. No. 15) plus 9% state tax. Inter-State supplies carry 18% integrated tax instead (Notification No. 8/2017-Integrated Tax (Rate), Sl. No. 15). Either way, 18% in total.

Banks show this as a separate GST line on your statement; check it if your figures differ from ours.

Effective APR

We treat the purchase as money received today, minus the processing fee and its GST. Each month you pay the EMI plus that month's GST on interest. The effective APR is 12 × the monthly IRR of these cash flows, the same method as the true cost checker. When there's no extra cost, APR is 0%.

Limitations

• Assumes the processing fee is charged at conversion. Some banks bill it in the next statement.
• Excludes late fees, foreclosure charges and any lost reward points or cashback.