Work out the real cost of a no cost EMI offer, including GST on the interest and the processing fee, and the effective annual rate that makes two offers comparable.
Is no cost EMI really free?
Almost never. The interest is genuinely cancelled by the merchant, so that part of the claim is true. What survives is the GST on the interest the bank charged, because the tax is calculated before the discount, and any processing fee with its own GST. On a small purchase that can be a few hundred rupees; on a large one it can be several thousand.
Why is GST charged when the interest was discounted?
Because the two are separate transactions. The bank has lent money and charged interest, and it levies GST on that service. The merchant then gives you a discount out of its own margin. The discount reduces what you owe the merchant, not what the bank charged, so the tax on the bank charge stands.
Should I take a no cost EMI or pay upfront?
Neither always: it turns on the effective annual rate. Compare the rate on this page against what the money would earn if you kept it. A short no cost EMI at an effective 4% is cheap borrowing. It stops being cheap if the retailer offers a cash discount for paying upfront that you give up by choosing the EMI, because that discount is a real cost of the offer.
Why does a longer tenure cost more on a no cost offer?
The bank charges more interest over more months, and the GST follows the interest. The merchant funds the interest but not the tax, so a 24 month no cost EMI carries far more GST than a 3 month one on the same purchase.
Does this include a cash discount I lose by choosing EMI?
No. This page prices the EMI offer itself. If the same shop would take ₹2,000 off for paying in full, that ₹2,000 is a further cost of choosing the instalments, and you should add it before comparing.
Where does the 18% come from?
It is the standard GST rate that applies to financial services, carried in our dated GST ruleset with its source. It is an input on this page rather than a fixed number, so you can put in whatever your statement shows and see the effect.