Boon or bane? Decoding the reality of zero-cost EMIs

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credit cards. Interest payments on credit cards carry 18% GST. So, your monthly instalments are not made up of just principal and interest but also carry 18% GST charged on the interest component built into the instalment.

Let’s understand this with an example. Say, you buy a television worth ₹62,000 in a no-cost EMI scheme. You have to pay ₹6,889 in monthly instalments for nine months.

The interest rate is 16%. In the first month, of ₹6,889, the principal is ₹6,115 and interest is ₹774. However, in your credit statement, you will see the interest component to be ₹913 as it includes 18% GST (goods and services tax).

So, the total amount you pay in the first month is ₹7,028 instead of ₹6,889. Over eight months, you pay ₹709 extra in GST (see graphic) on the interest amount that is technically not even borne by you. This is a hidden cost to such no-cost EMI purchases that you are not told upfront.

Banks also charge a processing fee of ₹99-250 which, in most cases, is disclosed upfront. The GST on interest payments and the processing fee is the cost that you pay for availing the interest-free loan. In the above example, you would have paid about 1.5% extra on a ‘no-cost’ loan.

Also, credit card purchases turned into EMIs are exempted from earning rewards. This means you lose out on an additional 1-3% that you would have earned in the form of rewards or cashback. When you take a loan from a non-banking finance company (NBFC), there could be a host of other charges like convenience fee, network fee, annual fee, etc., that may add to this cost.

Do note that taking a loan from an NBFC or a bank doesn’t attract 18% GST on the interest. However, GST is applicable on other fees and penalties. It can be argued that it is still a