GST on Credit Card EMI

How Much GST is Applicable on Credit Card EMI Payment? 

Understanding how GST is applied on your credit card EMI payment helps you manage costs and avoid unnecessary financial strain. Here are few details that you must remember: 

1. The 18% GST is charged on both the EMI interest component and the processing fee. 

1. The same GST rate applies to interest levied on missed EMI payments. 

Impact of Missed Payments 

1. Overall debt increases due to unpaid or delayed EMIs as it causes interest to accumulate. 

1. Financial stress due to debt trap is caused due to consistent delay in EMI payment. 

1. Set up payment reminders and ensure EMI repayments on time to avoid unnecessary financial stress.

Other Credit Card Charges Attracting 18% GST 

The credit card charges attracting GST are listed below: 

1. Annual fees 

1. Joining fees 

1. Late payment fees 

1. Over-limit charges (for spending beyond your credit card limit) 

1. Foreign exchange transaction fees

What are the Impacts of GST on Credit Card? 

The introduction of the Goods and Services Tax (GST) brought major changes to India’s financial system, including how credit card transactions are taxed. The key points to understand the impact of GST are mentioned below: 

GST Charged Only Once 

1. Regardless of whether payment is made via cash or card, GST on credit card transactions is applied only once. 

1. This ensures no double taxation on credit card payments. 

Slight Increase in Tax Rate 

1. The GST rate is 18%, compared to the earlier 15% service tax. 

1. The 3% rise in tax has a minimal long-term financial impact.

Utility Bill Payments Unaffected 

1. Payments of utility bills, such as electricity or water, made through credit cards remain exempt from GST, just as they were exempt from service tax earlier. 

Late Payment Penalties Attract GST 

1. GST of 18% applies on the late payment charges on credit card bills, which has increased from the previous 15% service tax. 

1. This GST applies only if you miss your payment due date and timely payments help you to avoid both penalties and GST on them. 

Can I Claim ITC for GST Paid? 

Yes, you can claim ITC for GST paid for your credit card EMI. 

Input Tax Credit (ITC) allows businesses to reclaim the GST paid on purchases of goods or services while paying tax on their output.

Eligibility for ITC on Bank Charges 

1. Under Section 17(5) of the CGST Act, ITC on GST paid for bank charges is not restricted. 

1. Therefore, businesses can claim ITC for the GST paid on bank fees and charges. 

Conditions to Claim ITC (as per CGST Act) 

To claim ITC on bank charges, the following conditions must be met: 

1. Must possess a valid tax invoice, debit note, or other tax-paying document. 

1. You must have actually received the goods or services for which ITC is being claimed. 

1. Payment of GST to the government on those services (bank charges) must be made either by cash or through ITC utilization by the bank. 

1. Under Section 39 of the CGST Act, the required GST return must be filed by the individual.

Advance Rulings on GST on Credit Cards 

An advance tax ruling is a written clarification issued by tax authorities. It is provided to help businesses or individuals understand how specific tax laws apply to their situation. It provides legal certainty and helps taxpayers comply with the law. 

Case Overview: GST on Credit Card Reimbursements 

Entity Involved: 

ICU Medical India LLP, a subsidiary of ICU Medical Inc. (the holding company). 

Scenario: 

1. The holding company issued credit cards to employees of the Indian subsidiary for business-related expenses. 

1. The subsidiary later reimbursed the expenses to the holding company. 

Case: 

Was GST applicable on the reimbursement of expenses made by the subsidiary to the holding company? 

Ruling by Tamil Nadu Appellate Authority for Advance Ruling (AAR) 

1. The AAR held that GST is applicable to such reimbursements. 

1. On behalf of the subsidiary, the payment made by the holding company was considered an advance consideration for the services provided. 

1. Credit card expense reimbursement qualified as a “Supply” under GST law. 

Classification as Import of Services 

1. The AAR further ruled that these services amount to an import of services. 

1. As a result, 18% GST is applicable on the reimbursements made to its holding company and ICU Medical India LLP (the subsidiary) is liable to pay the GST amount.