What Is the GST Rate for a Credit Card?

Posted on Thursday, September 19th, 2024 | By IndusInd Bank

The Goods and Services Tax (GST) in India led to significant changes in the taxation system. It impacted various financial products and services, including credit cards. If you have used credit cards before, you would know that they are a convenient way to make payments. They make it easy to pay merchants and also help upgrade one’s lifestyle with their rewards and benefits. 

However, the cost of using a credit card has changed in the last few years because of the application of GST on various fees and charges. Understanding the GST on your credit card expenses is crucial to making prudent financial decisions. 

Understanding GST Rates on Credit Cards

• As per prevailing rules, the GST on credit cardsin India is levied at a standard rate of 18%. This applies to various credit card-related fees and services. It includes annual fees, late payment charges, interest on revolving credit, processing fees, and other charges.

• Let’s understand this with an illustration: 

Assume your credit card issuer levies an annual fee of ₹1,000. The current credit card GST rate is 18%.

So, the GST applied on the credit card annual fee will be ₹180. This brings the total amount payable to ₹1,180.

Similarly, if you incur late payment charges or other fees, these too will attract an 18% GST. 

• Note that GST credit card charges are not applicable on the actual credit card transactions (i.e., the purchases you make using your card). Instead, it is applicable on the services and fees associated with the use of the credit card. 

Being aware of this difference helps avoid confusion when you see additional charges on your credit card statement. Let’s clear some more confusion by addressing some common myths.

Myths About GST on Credit Cards

Here are some of the most common myths regarding GST on credit cards:

Myth 1: GST is charged on every transaction made using a credit card

Truth: GST is not applied to every purchase or transaction made with your credit card. Instead, it is only levied on specific services like interest amount, annual fees, and so on.

Myth 2: GST increases the cost of goods purchased with a credit card

Truth: The GST you pay is on the services provided by the credit card issuer, not for the goods or services you purchase with the card. The prices of goods are already inclusive of GST as per the applicable rates.

Myth 3: All credit card transactions have hidden GST charges

Truth: Credit card statements outline where the credit card GST charges are being applied. This will usually be in fees or interest.

Knowing the truth behind these myths helps clarify how GST impacts your credit card usage. It also ensures you are not caught off guard by additional charges. 

Understanding Different Charges in Credit Card

Now that we have a clearer understanding of how GST on credit cards works, let’s explore the different charges where this tax may be applied. 

1. Annual Fees

Most credit cards come with an annual fee. The actual fee can depend on the card type. An 18% GST is added to this credit card fee. 

2. Interest on Outstanding Balances

If you carry a balance on your credit card, the interest charged on that balance will attract GST. For example, if the interest amount on your outstanding amount is ₹2,000, an additional ₹360 (18% of 2,000) will be charged as GST.

3. Late Payment Charges

Banks impose a late fee when you miss the due date for your credit card payment. Here, too, there will be 18% GST on this credit card fee.

4. Processing Fees

Banks may charge processing fees for certain transactions, such as cash advances or balance transfers. GST is applied to these fees as well.

It is crucial to note that the credit card GST rate is subject to change as per directives by the relevant authorities. 

Also Read: Understanding All About Credit Card Swipe Charges

Conclusion

Every credit card holder must know about GST on credit cards, as it affects the overall cost of using the card. When you are aware of such information, you can better manage your expenses and avoid any surprises on your credit card statement. 

IndusInd Bank offers a range of Credit Card options with transparent fee structures so that you are always aware of what you are paying for. What’s more? Our Credit Cards come with excellent rewards programmes, exclusive privileges, complimentary perks, and more. 

Apply now for a Credit Card from IndusInd Bank!

Disclaimer:

The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.