🏠 Understanding GST on Home Loans: What Buyers Need to Know in 2025
When planning to buy a home, most buyers focus on the interest rate, loan amount, and EMIs. But there is one question many still ask: “Is GST applicable on home loans?”
Home loans involve multiple components like processing fees, legal charges, and loan services — and GST plays a role in some of these. Understanding GST correctly helps you avoid confusion and plan your home-buying budget more accurately.
Here’s a clear and simple breakdown of how GST applies to home loans in India.
✅ Is GST Charged on Home Loan Amount?
No. GST is not charged on the loan amount or the EMI.
Your EMI includes only:
- Principal repayment
- Interest charged by the bank
Neither of these attracts GST. So if you take a ₹40 lakh home loan, the bank will not charge GST on that amount.
💸 Where Does GST Actually Apply?
GST is only applicable on the services provided by banks and financial institutions — not on the home loan itself.
Here are the main places where GST applies:
1️⃣ Processing Fees
Banks usually charge a processing fee of 0.25–1% of the loan amount.
GST of 18% applies to this fee.
Example:
Processing Fee = ₹10,000
GST @ 18% = ₹1,800
Total = ₹11,800
2️⃣ Legal and Technical Fees
These are charged for property verification and valuation.
GST of 18% is applicable.
If legal fees = ₹5,000
GST = ₹900
Total = ₹5,900
3️⃣ Prepayment or Foreclosure Charges (for NBFCs)
Banks don’t charge prepayment fees on floating-rate home loans, but NBFCs may.
Such charges also attract 18% GST.
4️⃣ Loan Conversion or Switchover Charges
If you switch from a higher to a lower interest rate (conversion charges), GST applies at 18%.
🧱 What About GST on Under-Construction Property?
This is where GST becomes more relevant.
🏗️ For Under-Construction Flats
GST is charged as follows:
- 5% GST on normal housing projects
- 1% GST on affordable housing
👉 No ITC (Input Tax Credit) is available to buyers.
🏡 For Ready-to-Move-In Flats
There is NO GST if:
- The builder has obtained a Completion Certificate (CC), or
- The project is ready for possession
This is why many buyers prefer ready-to-move homes.
🧮 Summary of GST on Home Loan Components
| Home Loan Component | GST Applicable? | GST Rate |
|---|---|---|
| Loan Principal | ❌ No | – |
| Interest (EMI) | ❌ No | – |
| Processing Fee | ✔️ Yes | 18% |
| Legal/Technical Fee | ✔️ Yes | 18% |
| Foreclosure Charges | ✔️ Yes (NBFCs) | 18% |
| Conversion Charges | ✔️ Yes | 18% |
| Under-Construction Property | ✔️ Yes | 1% or 5% |
| Ready-to-Move Property | ❌ No | – |
🧠 Important Tips for Homebuyers
- Always ask your bank for a breakdown of charges to understand GST applicability.
- If buying an under-construction home, compare overall cost (including GST) with ready-to-move options.
- For large loan amounts, negotiate processing fees — banks often offer discounts during festivals.
- Keep all GST invoices — they may be useful for tax filing or property documentation.
🏁 Conclusion
While GST is not charged on the home loan amount or EMI, it does apply to several service charges associated with the loan. Knowing where GST applies helps you plan your finances better and avoid surprises during your home-buying journey.
If you’re taking a home loan in 2025, understanding these GST rules ensures a smoother and more transparent experience.
