Credit Card EMI & No-Cost EMI

This page explains where each rupee goes, and which rule sets it.

What does “no-cost EMI” actually mean?

Three parties are involved: you, the card issuer, and the merchant. The issuer never lends free. It fixes an interest rate and builds an EMI schedule. The merchant then hands you an upfront discount worth about the same as the total interest.

Two structures are common. In the first, the discount is knocked off the price at checkout. In the second, the full amount is charged and the discount is credited back later as a statement credit or cashback. The second one is worse for you. You fund the difference until the credit lands.

The interest is real either way. It appears on your statement. That matters, because tax follows the interest, not the discount.

What are the rules and charges on a credit card EMI?

Every figure above is as of 6 September 2026.

Why is GST charged on a no-cost EMI?

Interest on an ordinary loan carries no GST. Entry 27 of Notification 12/2017-Central Tax (Rate) exempts it. But the entry has a bracket in it. It exempts interest “other than interest involved in credit card services”.

So card interest is taxable. Your no-cost EMI has interest inside it by design. That interest attracts GST at the standard financial-services rate of 18%.

The merchant discount offsets the interest. Nothing offsets the tax. That gap is the true cost of the offer, and it is the number the ad never shows.

Does the RBI allow zero-percent EMI schemes?

The RBI has told banks to stay away from them. Its Master Circular on interest rates on advances says banks “should refrain from offering low / zero percent interest rates on consumer durable advances to borrowers through adjustment of discount available from manufacturers / dealers of consumer goods”. The reason given is blunt: such schemes “lack transparency in operations and distort pricing mechanism of loan products”.

That instruction dates from 1 July 2008 and the schemes are still everywhere. Read it as a warning about the format, not as a ban you can enforce.

Why does a card EMI carry no APR disclosure?

Because the RBI exempted it. The Key Facts Statement rules of 15 April 2024 force lenders to hand you a one-page APR summary. APR is defined there as “the annual cost of credit to the borrower which includes interest rate and all other charges”. That is exactly what you want.

The same circular says credit card receivables are exempt. So a personal loan sanctioned after 1 October 2024 must show you an all-in APR. The EMI on your card does not. This is the single biggest reason card EMI is harder to compare than a personal loan.

Do the sum yourself. Add every EMI you will pay. Add the conversion fee with GST. Subtract the discount you received. Compare that total against the cash price.

What happens to my credit limit and my credit score?

The converted amount usually stays blocked against your credit limit until it is repaid. Confirm this with your issuer before converting. A large blocked balance pushes up your credit utilisation ratio, and utilisation is one of the heaviest inputs into a bureau score.

The EMI itself is not a separate loan account at the bureau in most cases. It sits inside the card. So the damage, if any, comes through utilisation rather than through a new account.

What does it cost to close an EMI early?

Issuers charge a foreclosure fee, plus 18% GST on that fee. The amount varies by card and is published in the schedule of charges. There is a second sting on a no-cost plan. You already took the merchant discount upfront. Some issuers claw back the unamortised discount at foreclosure.

So paying early can cost more than paying on schedule. Check both numbers before you act. The same care applies when you close a credit card that has a live EMI on it.

When is credit card EMI the right choice?

It is right in one case. You need the item now, you can service the EMI comfortably, and the all-in cost after the discount is below any other credit you can get. For a genuine short no-cost plan on a real discount, that is often true.

It is wrong when the “discount” is only available on EMI. Then the cash price was inflated to fund it. It is also wrong when you convert simply to avoid revolving. Revolving interest is far worse, but the better fix is to stop reaching the limit. Read our page on credit card rules from the RBI before you accept an auto-conversion offer on your statement.