GST on Gold Loan Interest? A Complete Guide for Borrowers in 2025
If you’re in the process of taking a gold loan or already have one, getting to know how GST works on different charges can save you a lot of confusion. Gold loans are one of the quickest ways to borrow money, but the fees and taxes attached to them aren’t always easy to decode. Many borrowers assume GST is charged on everything, including gold loan interest, but that’s not true. Knowing what is taxed and what isn’t helps you calculate your total borrowing cost more accurately and avoid surprises later.
In this guide, you’ll get a clear picture of how GST applies to gold loan interest, processing charges, and other service fees. We’ll also break down examples, simple steps to verify GST, and mistakes to avoid.
Is GST Charged on Gold Loan Interest?
Here’s the first thing you should know. GST is not charged on gold loan interest. As per GST laws in India, interest on loans is considered a “financial service” and is exempt from GST. This exemption covers the interest portion you pay every month or at the end of your tenure.
Why is it exempt? Because interest is treated as a return on lending, not a service fee. The government doesn’t place GST on interest payments for loans such as personal loans, home loans, or gold loans.
But there’s an important distinction: Interest is exempt from GST, whereas processing fees and other charges are taxable. Many borrowers mix the two, assuming both come under the same tax treatment.
Legally, the GST Act clearly separates interest income and service charges. Financial institutions follow this rule while preparing invoices and loan statements. So whenever you’re reviewing your gold loan documents, check that interest is listed separately from other fee components. If GST is mistakenly added on interest, you have full right to question it or request a correction.
GST on Gold Loan Processing and Service Charges
While interest is exempt, processing fees are fully taxable under GST at 18%. This is because processing fees are treated as a service provided by the lender. So the bank or NBFC must apply 18% GST on whatever processing charge they collect from you.
The same 18% GST also applies to:
- Documentation charges
- Valuation fees
- Appraisal charges
- Renewal fees
In short, any fee that is not “interest” will attract GST.
Example:
If your lender charges a processing fee of ₹500:
- GST @ 18% = ₹90
- Total fee payable = ₹590
Another example with valuation fees:
If valuation charge = ₹300
GST @ 18% = ₹54
Total = ₹354
These small amounts may not seem significant at first, but together they form a part of your total borrowing cost. So when you compare lenders, don’t just look at interest rates—check their service charges and GST impact too.
How GST Affects the Total Cost of Gold Loans
Your gold loan interest stays untouched by GST, but the other fees add to your total cost. Every time a processing fee or valuation charge is levied, the extra 18% GST increases your upfront spending. This is why two lenders with the same interest rate may still have very different total loan costs.
If you look at it closely, GST impacts charges, not interest. So your EMI won’t go up because of GST. However, if your lender collects a foreclosure charge, part-payment fee, or renewal fee, GST at 18% will apply to those as well.
Example:
If foreclosure charge = ₹1,000
GST @18% = ₹180
Total = ₹1,180
Understanding this helps you compare lenders better. A lender with a slightly higher interest rate but low fees may actually be cheaper overall than a lender with many GST-applicable charges.
How to Calculate and Verify GST on Your Gold Loan
It’s always better to double-check your GST charges instead of assuming everything is correct. The calculation is simple once you know which items attract GST.
Step-by-step guide:
- Identify the type of fee: processing, valuation, documentation, etc.
- Confirm that GST applies (it shouldn’t apply to interest).
- Multiply the fee amount by 18%.
- Add the GST amount to the base fee to get the total payable.
Example:
Processing fee: ₹600
GST (18%): ₹108
Total fee: ₹708
Next, open your loan statement and check:
- Is interest shown separately?
- Are GST-applicable charges listed clearly?
- Is GST calculated correctly at 18%?
Many lenders also offer online tools that auto-calculate GST on fees. You can also cross-check using any basic GST calculator available online. These help you catch errors and avoid paying extra unintentionally.
Documents and Compliance
Whenever you take a gold loan, always ask for GST-compliant invoices for all charges. These invoices must clearly show:
- Base fee amount
- GST percentage
- GST amount
- Total payable
This protects you as a borrower and gives you proof of what you were charged. Lenders are legally required to issue proper invoices under GST rules.
You should also keep:
- Your loan sanction letter
- Repayment receipts
- Statements showing foreclosure or part-payment charges
- Valuation and documentation charge invoices
These documents can help resolve disputes, assist with audits, or simply provide clarity if you want to review your total cost later. They are also useful if you run a business and need the records for accounting purposes. Even though you cannot claim GST input credit for personal loans, proper documentation ensures transparency and accuracy.
Gold Loan Interest Rates
Most banks and NBFCs offer gold loans but the rate of interest varies based on the credit profile of the applicant, value and purity of gold, and its prevailing prices. Also, a farmer keen on a gold loan for funding agriculture infrastructure or to meet other farming-related activities may get a rebate on the interest rate.Numerous factors can affect gold loan interest rates in India. Some of them are influenced by personal factors relating to the borrower, while others are external relating to the current economic conditions and the domestic gold prices.
The gold loan interest rate, availed by pledging gold, are relatively lower than other types of loans and range between 7.35% and 29% per annum currently and the repayment tenure ranges between seven days and 240 months.Lenders follow two types of benchmarking methods to determine the loan against gold interest rate: Repo rate-linked lending rate and marginal cost of funds based, or MCLR-linked lending rate. The interest rate on a gold loan varies from one lender to another, depending on the chosen benchmarking method. Generally, MCLR-linked lending rates result in a gold loan at lower interest rate.
Goods and Services Tax
There is some confusion among people that a borrower needs to pay a GST on the interest component of the equated monthly instalment (EMI). To put things straight, no GST is levied on interest payments of the gold loan as there is no GST if the transaction fits the meaning of a loan or deposit.The GST tax on gold, however, is levied on all other charges such as processing fee, documentation charges, valuation fee, service charges and foreclosure charges, among others.
Moreover, a borrower must take a loan against gold from a licensed lender. If the lender is not licensed, its loan products will not be deemed under the definition of “loans” and may attract GST, even on interest payments.
Conclusion
The interest rate on the gold loan depends upon the type of loan scheme availed and its tenure. Understanding the nitty-gritty of a gold loan and its various aspects is crucial because it directly affects the EMI.A gold loan is a secured loan which customers can avail from banks as well as non-banking finance companies such as IIFL Finance in lieu of gold ornaments. IIFL Finance has a transparent fee structure and no hidden charges, so a borrower need not worry about the hidden costs incurred after apply for gold loan.
Frequently Asked Questions
GST is not applicable on the loan amount or interest. However, GST is charged on processing fees and other service charges associated with the loan.
Since the main purpose of buying jewellery is the gold itself, the tax authorities in India treat the making charges as a secondary service. This is why the overall GST on gold ornaments is a lower 3%, instead of the 5% that might apply to some purely service-based transactions.
While avoiding GST entirely isn't possible because it's a mandatory tax, you might find better deals! Consider buying from authorised dealers under the GST composition scheme. These dealers typically offer a lower overall tax rate compared to the standard GST rate on gold.
While GST is typically applied when buying gold jewellery in India, there are situations where you can claim a refund. This applies if the jewellery is:
- Exported: If you're a tourist buying gold jewellery to take home, you may be eligible for a GST refund.
- Purchased for export or manufacturing: Businesses buying gold jewellery specifically for export or to use in manufacturing processes can also claim GST refunds.
No, GST is not charged on gold loan interest. Interest is exempt under GST because it is considered a financial service and not a taxable supply. Your lender should never add GST on the interest portion of your loan. Only service charges and fees attract GST.
Most gold loan fees such as processing charges, documentation fees, and valuation charges attract GST at 18%. This rate applies to all lenders, including banks and NBFCs. The GST amount is added to the base fee, increasing your overall borrowing cost.
No, GST does not increase your EMI because it isn’t applied to interest. But GST does increase your upfront costs since it applies to processing fees and other service charges. So while your EMI stays the same, the total amount you pay at the start may be higher.
You cannot claim input tax credit on gold loan fees if the loan is for personal use. Input credit is only available for business-related expenses. Even then, only GST on service charges—not interest—can be claimed, and only if the loan supports taxable business activities.
Disclaimer : The information in this blog is for general purposes only and may change without notice. It does not constitute legal, tax, or financial advice. Readers should seek professional guidance and make decisions at their own discretion. IIFL Finance is not liable for any reliance on this content. Read more
