Loans on Credit Cards and Hidden Service Tax 12.36% on Interest Portion

Unrevealed truth of Bank

Loans on Credit Cards and Hidden Service Tax 12.36% on Interest Portion 

Fifteen days back I got a call from HDFC bank have a “Grate Offer” for me on my HDFC Credit Card, I was interested, they said me that you will get insta loan of Rs. 90750/- on your credit card with ”Amazing interest Rate “”0.99% per Month and will be credited in 1* Hour.

As a finance Professional suddenly I worked out, it would be 11.88% annually and immediately I said OK. 

 

What she didn’t tell me was that there was a 12.36% service tax on the interest component of the EMI!, even in EMI Statement service tax portion is not shown separately

 When I received email statement from HDFC bank I came to know that, the HDFC bank sales executive had very smartly sale his product.

If you include the Service tax and Cess cost in your interest Components, then the total cost of funds increases from 11.88% to 14.16%! This credit card loan is different from the normal type of Loan and personal loans which is taken from the bank or financial institute 

This is a fact that bank sales people always hide the facts and many card holders do not realize this small service tax creeping into the credit card statements for months or even years!

Also please keep in mind that service tax is applicable even if you are paying your minimum dues and postponing the payment of the entire due to the next month. Let’s do some calculation here.

Let us say you have swiped your card for a total of 75,000 rupees in a month. Your credit card dues are Rs.75, 000. But the banks allow you to pay minimum dues on it which is 5%. So you pay Rs.3750 and now see the worry in your next month statement

Now the remaining Rs.71, 250/- attracts a rate of 3.25% per month. This is 39% per year! Your savings account returns 4-6.5% per year! But this 39% is for the bank.

So at the prevailing rate of 12.36% service tax, you end up paying 39% X 12.36% = 43.82% per year in interest including service tax.

Though it is small instance but I think it will help you to save from this type of fraudulent practice of Banks