No Cost EMI Explained: Is No Cost EMI Actually Free?

[Dhruvkumar]

Whatever would be the case.
Merchant is not getting any additional benifit by giving Interest discount as an Instant discount except Increase in sales and hence Increase in profits

NCEMI is funded by Brands to boost the sale.
Merchant gives the Instant discount and receive the same from Brands

Only In giving Bank specific discount Bank and Merchant is involved and there is commision involved.

Whatever Maths you did in your previous comments, do the same maths in following case.

Product Price is XXX.
Under NCEMI offer Interest of YYY is given as CashBack after 90 days not as an Upfront discount.
This happens in Offline Shopping.

If you belive that merhcnats are just giving away so much money to banks for free than I have nothing to say. If banks do not give commison that means since interrest amount is kept by bank but interest discount given by seller so effectivly mechant are giving away free money to bank.

 

[VISHESH_BANSAL]

If you belive that merhcnats are just giving away so much money to banks for free than I have nothing to say. If banks do not give commison that means since interrest amount is kept by bank but interest discount given by seller so effectivly mechant are giving away free money to bank.

Not merchant But Brands.

If someone purchased Samsung refrigerator, so Samsung is the one who will bear the NCEMI Discount.

I even have Bajaj Finace Statement in which it is clearly Wriiten Interest Paid Upfront by Manufacturer.

 

[Dhruvkumar]

Not merchant But Brands.

If someone purchased Samsung refrigerator, so Samsung is the one who will bear the NCEMI Discount.

I even have Bajaj Finace Statement in which it is clearly Wriiten Interest Paid Upfront by Manufacturer.

Mechnats or brands same thing. If brand is one bearing the cost they'll take commsions. You see banks're getting free loans(I mean 90% od NCEMI loan won't exist if they're no cost.) In fact you yourself won't take loan if it weren't NCEMI.

Also try to understand commsion model of Bajaj Finance . I was quite impressed now I'm shareholder of BAJAJ Fianance and Bajaj Finserve. They're the one pioneering this commison model. Now as I said previously commisons are not always liner but on qunatity. Also, even in Cost EMI or normal EMI (opposite of NCEMI) if it's taken from shop or merchant side Brand or merchent does earn commison.(who'll get how much commison depends on agreements but in genral it gets splited).

 

[VISHESH_BANSAL]

Mechnats or brands same thing. If brand is one bearing the cost they'll take commsions. You see banks're getting free loans(I mean 90% od NCEMI loan won't exist if they're no cost.) In fact you yourself won't take loan if it weren't NCEMI.

Also try to understand commsion model of Bajaj Finance . I was quite impressed now I'm shareholder of BAJAJ Fianance and Bajaj Finserve. They're the one pioneering this commison model. Now as I said previously commisons are not always liner but on qunatity. Also, even in Cost EMI or normal EMI (opposite of NCEMI) if it's taken from shop or merchant side Brand or merchent does earn commison.(who'll get how much commison depends on agreements but in genral it gets splited).

If commision is not involved why would any one work in such ecosystem ?

Ultimately someone is bearnng the cost of Discount.

Even if we pay in full what do you think Commission is not involved?

Original topic is about GST. If we are opting NCMI we should not bother about who is getting what in return since we are getting the option of paying only Product price in EMI, which we want.

 

[shivek]

In your case Interest charged by Bank would be given as CashBack rather than Instant discount?

Instant Discount
12K on WM + 6K on TV + NC EMI discount
You can refer the calculation [1] I shared is for same and it is on my actual purchase.
Invoice was generated on pre-discounted price.

 

[Mack]

How NCE(no cost emi) discount is derived considering interest rate as 15%

 

[saucy]

If you are a credit card user, there is a high probability that you have made purchases using the EMI (Equated Monthly Installment) option. There are a few ways to avail of EMI options:

[Article Link: https://www.technofino.in/no-cost-emi-explained-is-no-cost-emi-actually-free/]

1. Purchase directly from the merchant at EMI.
2. Pay the full amount initially and then convert the charge into EMI by contacting your card issuer.
3. Opt for No Cost EMI.

When we make a purchase at EMI or convert our purchases to EMI through the bank, the bank charges us interest on the principal amount. It is a short-term personal loan. However, the bank does not report these separately to the credit bureaus.
In the case of No Cost EMI, as the name suggests, it implies EMI without any interest. But is it truly interest-free? Let's explore the charges associated with No Cost EMI to find out.
So, when you decide to make a purchase using the No Cost EMI option, let's consider buying a Samsung Galaxy S23 Ultra 5G with a cost of Rs. 1,24,999 on Amazon. You can choose to use a HDFC Bank credit card for the transaction and you will be presented with various tenure options to select from.

As you go through the options, you will notice that there is a total interest amount mentioned along with an equivalent discount for each tenure.

View attachment 20088
In reality, banks do not offer interest-free EMIs. Instead, it is the merchant who provides an upfront discount equivalent to the interest amount that the bank would charge if you were to opt for the No Cost EMI. Essentially, the bank still applies their interest as per their policy, but you receive an immediate discount of the same amount from the merchant.

In this scenario, if you choose the 24-month No Cost EMI option, you will be charged a total of Rs. 1,06,372. You will receive an upfront discount of Rs. 18,627 from the merchant (Amazon in this case), which offsets the future interest charges.

Now, let's take a look at the charges associated with No Cost EMI:

1. Processing Fees: Typically, banks charge a flat processing fee if you choose the No Cost EMI option. This fee can range from Rs. 99 to Rs. 300.
2. GST on Interest: Although customers receive the interest amount as an upfront discount, banks still levy GST (Goods and Services Tax) on the interest component of the credit card EMI. Therefore, for each EMI, you will have to pay 18% GST on the interest amount.
3. Foreclosure Charges: If you decide to cancel the EMI at any time, banks usually impose foreclosure charges. These charges can range from 2% to 5% of the remaining EMI amount.

It is important to be aware of these charges before opting for the No Cost EMI option.

Many people often misunderstand the concept of "No Cost EMI" and mistakenly believe that there will be no interest charged by the bank if they choose this option. This misconception can lead to feelings of being cheated once they discover the reality behind No Cost EMI. It is essential for individuals to understand all the associated fees and how No Cost EMI works before utilizing it.

Here's a helpful tip for you: Consider selecting the maximum available tenure when opting for a No Cost EMI. By doing so, you can receive the maximum interest discount. After the EMI is posted on your credit card account, which typically takes 3 to 7 days, contact your card issuer and cancel the EMI. The bank will ask you to pay the remaining amount. Even after paying foreclosure charges, significant savings can be achieved.

Let's refer back to the example we discussed earlier with the Samsung Galaxy S23 Ultra 5G. If you choose the 24-month EMI tenure, you will receive an upfront discount of Rs. 18,627, resulting in a charge of Rs. 1,06,372. However, if you cancel your EMI a few days after the purchase, even after paying a 3% foreclosure fee (approximately Rs. 3,035, calculated as 3% of the remaining amount after deducting the upfront discount), you can save nearly Rs. 15,500 as an upfront discount.
However, it is crucial to perform your own calculations and consider the terms and conditions before employing such tactics.

Great post. Few follow up questions, please.

1. Does this apply on the "convert to emi" options that we get in the credit cards statement as well?

2. I once bought a laptop which had 5% off on emi. It costed me 57k credit card swipe (that was the cost after 5% discount) and i didn't forclose the amount.
There was chat sgst and IGST, and i think the net deduction was over 58k. Implying that even though it was a no-cost emi, there was no upfront discount that the merchant provided. Am i understanding it correct?

 

[saucy]

the way technofino gets 18k discount on the Samsung phone (given by the merchant), was there any such discount that you got from in your txn, and if yes, was that not reversed?

@TechnoFino
Want to save foreclosure charge and processing fees as well?
You can cancel not foreclose EMI conversion and pay the full amount upfront.
Just contact the bank after 3 days of transaction and ask for cancellation. Get processing fees and GST refunded. 🔥

For Axis bank, they allow to cancel within 30 days,
4 days for HDFC.

Ref: Check screenshot attached.

 

[saucy]

Just our of curiosity - why is "gst on interest" paid by the buyer and not by the bank(the one who gets the interest)

Isn't interest their extra income?

Is it because "interest" is a payment towards a service that the buyer is taking?

In that case, why does the buyer pay GST on a "late payment fee" which is a penalty

It does not work this way:
a.) GST is not for seller to keep, so it is not going to happen that GST charged by bank will be returned back to seller.
b.) All financial charges attract GST@18%. Be it normal EMI or No Cost EMI or EMI for loan taken on card, GST will always be charged on interest component. Even Processing Fee or Late payment Fee attracts GST @18%.
c.) GST varies from product to product, so if you calculate with product purchased on GST less than 18% you will always get a deficit.

Note: I am not a GST expert, some one from the field can chime in to share more details or make corrections.

I am sharing three calculations (refer snippets)
1. from my actual purchase, here I got Instant discount and NC EMI discount
2. derived from [1], I only removed the Additional discount to reflect the actual use case discussed here
3. Used same as [2] but changed GST rate to 10% to emphasize on point [c] mentioned above

View attachment 20508View attachment 20509View attachment 20510

 

[VISHESH_BANSAL]

Just our of curiosity - why is "gst on interest" paid by the buyer and not by the bank(the one who gets the interest)


Isn't interest their extra income?


Is it because "interest" is a payment towards a service that the buyer is taking?



In that case, why does the buyer pay GST on a "late payment fee" which is a penalty

1st Question
Beacuse GST is an Indirect tax not a direct tax.
Bank collect GST on Interest from us and deposit it to Govt.

3rd and 4th Question
Because of Law- CGST ACT, 2017

 

[LJGIBBS]

Just our of curiosity - why is "gst on interest" paid by the buyer and not by the bank(the one who gets the interest)

Isn't interest their extra income?

Is it because "interest" is a payment towards a service that the buyer is taking?

In that case, why does the buyer pay GST on a "late payment fee" which is a penalty

Interest is the income of Bank. And bank pays Corporate Tax on that income. However GST on Interest (which bank is earning) is an Indirect tax.
Take eg of Parle G. MRP is Rs.10. Here cost of manufacturing is Rs 6, GST is Rs.1 and profit margin of shopkeeper is Rs.3. Shopkeeper would collect total Rs.10 from you. Deposit GST = Rs.1 to government and Pay Income Tax on Rs3 earned.

 

[ragz]

Hello folks,

I just watched this video -


Is this for real? Is this violating any rules or unethical way of getting discount?

Anyone used this and can share their expirence?

 

[starstruck]

Here you go

No Cost EMI Explained: Is No Cost EMI Actually Free?

If you are a credit card user, there is a high probability that you have made purchases using the EMI (Equated Monthly Installment) option. There are a few ways to avail of EMI options: [Article Link: https://www.technofino.in/no-cost-emi-explained-is-no-cost-emi-actually-free/] Purchase...

www.technofino.in

 

[ragz]

Here you go

No Cost EMI Explained: Is No Cost EMI Actually Free?

If you are a credit card user, there is a high probability that you have made purchases using the EMI (Equated Monthly Installment) option. There are a few ways to avail of EMI options: [Article Link: https://www.technofino.in/no-cost-emi-explained-is-no-cost-emi-actually-free/] Purchase...

www.technofino.in

So it's known loophole and people are taking benefit of it without any negative effects if used not very frequently??

 

[4uziaul]

So it's known loophole and people are taking benefit of it without any negative effects if used not very frequently??

I have heard that people who have abused it had their credit cards cancelled. Occasional use is fine, but if you do it frequently, you are bound to get noticed. So, use it judiciously.

 

[gowthamv]

Sorry if this question is Dumb.. But why do merchants give that much big discounts? Do they have profit margins greater than these upfront discount?

 

[poorna.chandra.akp]

@TechnoFino
Want to save foreclosure charge and processing fees as well?
You can cancel not foreclose EMI conversion and pay the full amount upfront.
Just contact the bank after 3 days of transaction and ask for cancellation. Get processing fees and GST refunded. 🔥

For Axis bank, they allow to cancel within 30 days,
4 days for HDFC.

Ref: Check screenshot attached.

How do only axis bank and hdfc bank allow it? Are they not aware of this loophole

 

[ragz]

How do only axis bank and hdfc bank allow it? Are they not aware of this loophole

That's the same concern I have.. if they are aware then how are they allowing this even occasionally? Because the discounts are almost 10-15% which is not less

 

[bugmenot]

Check out these articles and video from capital mind for detailed understanding.

How do No Cost EMIs Work? - Capitalmind

We start the year with an explainer on what is the meaning of No cost EMIs? This is when you are told: Take this product at 0% EMI for six months! And you wonder why. This is an interesting way that Bajaj Finance used to grow cons durable loans -…

www.capitalmind.in

How a Zero Cost EMI Actually Costs 9% - Capitalmind

You've heard of the zero-cost EMI, no? You have to buy something, and instead of paying for it now, you just pay for it over 6 months. That's awesome, correct? But it turns out there's something more sinister now. From a zero cost EMI, you are likely to be paying…

www.capitalmind.in

 

[lucifer69]

@TechnoFino
Want to save foreclosure charge and processing fees as well?
You can cancel not foreclose EMI conversion and pay the full amount upfront.
Just contact the bank after 3 days of transaction and ask for cancellation. Get processing fees and GST refunded. 🔥

For Axis bank, they allow to cancel within 30 days,
4 days for HDFC.

Ref: Check screenshot attached.

Hey, I just ordered a product worth 49900 on Amazon on No Cost EMI with 3K instant discount and the product cost was 46900 after that and there was 2200 no-cost EMI discount. Can someone guide me on how to cancel EMI and take that discount. I've all amount with me and can pay instantly as well. Just wanted to avail the 2K discount
@kvagarwal As you mentioned about foreclose charges as well. Can you tell me please ?
My Card is HDFC Milennia and billing date is also soon 20th so I want to clear it as soon as possible so that utilization will also be saved