What is the GST on home loan?

When buying a house, one of the most commonly used means by homebuyers to fund the investment is to avail home loans. While doing that, do homebuyers actually know of the tax implication on availing a home loan? This article details if GST is applicable on home loans. Read on. 

What is GST?

The Goods and Services Tax (GST) is an indirect tax that is implemented on the supply of goods and services. This was first implemented in 2017. 

Effective September 22, 2025, this was revised to GST 2.0 in which the previously operated four-tiered tax structure comprising of 28%, 18%, 12% and 5% tax rates was replaced with a two-tiered tax structure – a standard rate of 18% and a merit rate of 5%. Also, a demerit rate of 40% was introduced on certain luxury services and sin goods.

Is GST applicable on home loan?

GST is not levied on the home loan taken, but on the processing fees, legal costs and other charges that are levied when one opts for a home loan. Thus, the GST is levied on the services that help leverage a home loan and not on the principal/interest. 

To avail a home loan, a homebuyer has to pay various charges such as processing fees, legal costs, etc. to the banks, non-banking financial companies, housing finance companies etc. All home loan providers impose processing charges on home loans. The processing charges are also known as administrative charges. Since these are levied on the service used, previously, this was known as service tax and was charged at 15%. The GST has replaced multiple taxes such as the service tax, entry tax, central excise duty, etc. that were previously charged and this directly helps lower the cost of the property. 

What is the impact of GST on home loan EMI?

There is no direct impact of GST on home loan EMI as it is exempted on interest and principal. That said, the upfront processing fees with 18% GST will further increase the total amount and thus indirectly impact overall borrowing. It is recommended to calculate the EMI by excluding the GST to get the accurate EMI amount that you have to pay. 

What is the GST rate on home loan processing charges?

The processing fees that is levied for disbursing a home loan is in accordance to the category of financial and related services. These are identified by the HSN code 9971 and are taxed a GST rate of 18%. The home loan processing cost is charged between 0.5%-1% by public banks and between 1% -2% by private banks. 

For instance, Suresh buys a ready-to-move home for Rs 1 crore and for that he avails a home loan of Rs 60 lakh. Suresh pays the NBFC a processing fee of 1% on the home loan and on this processing fee he has to pay a GST of 18%. 

Thus, Suresh has to pay a GST of Rs 10,800 on the processing fee of Rs 60,000 that makes the total amount Rs 70,800. 

What are the other areas where GST is applied when a homebuyer opts for home loan?

In addition to the processing fees and legal fees, there are other areas where GST is applied. These include: 

• Document handling charges
• Partial prepayment of the home loan
• Prepayment of the home loan
• Late payment charges of the home loan
• Home loan closure

Thus, for a partial prepayment of 2% of the home loan, one has to pay a GST of 18%. 

Implications of GST on home loan closure

While one doesn’t have to pay GST on the loan balance, the borrower has to pay GST on the home loan foreclosure fee (around 0.5-2% of outstanding amount). 

How is the GST paid to the home loan provider?

GST is paid to the home loan provider along with the processing fee. This can be done in the form of bank transfer, UPI, cheque, etc. Once paid, you will get a receipt from the home loan provider for the GST that you have paid on the processing fee. 

Can homebuyers avail ITC on home loan processing charges?

The input tax credit (ITC) can only be availed for all services that have been used for the purpose of business. Since a home loan is usually opted for personal use and not for business purposes, no ITC is credited for this. 

What are the advantages of GST implementation on home loan borrowers and lenders?

• With the implementation of one tax structure in the form of GST, the paperwork related to home loan is much easier and transparent, a benefit for home loan borrowers.
• Home loan borrowers don’t have to pay the GST on principal/ interest, but only on the fee. 
• While homebuyers cannot claim the ITC, home loan providers can and this can help in making home loans cheaper.

Housing.com POV

In case of home loans, GST is levied only on the processing fees and not on the principal and interest amount. The GST 2.0 that was implemented on September 22, 2025, kept the 18% GST rate slab unchanged. Also, homebuyers should know that the GST on processing fees on home loan is non-refundable as this is a consumption tax on fee. Home loan lenders can claim input tax credit, which will be beneficial to them.