Are you aware of No Cost EMI from Amazon and Flipkart? They claim that No Cost EMI is ZERO interest, ZERO down payment, and ZERO processing fee. How is it possible?

However, as per the RBI notification (dated 17th September 2013), RBI prohibited financial institutes in offering ZERO percent interest loans. In such a situation, how one can offer No Cost EMI at ZERO interest, ZERO downpayment and ZERO processing fee?

Let us first understand the players involves in the online selling business.

**# Buyers**

It is you who browse online and place the order.

**# Sellers**

Sellers are not Amazon or Flipkart, but there are others who actually sell the products or brands by getting the orders on behalf of Amazon or Flipkart. You may find the seller details while buying the product or on the bill itself.

**# Amazon or Flipkart**

They are simply providing the connectivity between buyers and sellers and earning in between.

## No Cost EMI from Amazon and Flipkart – How does it work?

Let me share what Amazon define this No Cost EMI as “No Cost EMI is an offer by which the total amount paid by you to the EMI provider will be the price of the product split equally across the EMI tenure. The interest payable to the bank will be offered as an upfront discount during checkout, effectively giving you the benefit of No Cost EMI.”.

Let us take an example to understand this concept in detail.

# Assume that you are buying a product which cost you Rs.30,000.

# Assume that there is an upfront No Cost EMI discount of Rs.638. This is equal to the interest your bank will charge you on 3 months EMI (which is based on the inputs of the credit card you are holding).

# Now the price of the product is reduced to Rs.29,362.

# However, your bank will charge you the interest on Rs.29,362 (but not on the price of the product which is Rs.30,000) as this is considered as the actual loan amount. Hence, for bank the credit is Rs.29,362+Interest of Rs.638 for 3 months=Rs.30,000.

# This Rs.30,000 will be converted to EMI of 3 months of Rs.10,000.

Hence, in the end, you are paying Rs.10,000 EMI for Rs.30,000 product in three installments without any interest, down payment, and processing fee. Let me show the same through below image of Amazon.

However, there is something you have to be cautious. concentrate on the above image and see the NOTE, it is mentioned that Taxes as applicable will be charged by the bank.

## Who will pay the No Cost EMI Discount?

As I shared above about the RBI notification that no financial institutes are now allowed to offer the loan at ZERO percent interest. In such a situation, who will pay your interest part?

It is neither you nor Flipkart and Amazon, but the **sellers, retailer or brand **will bear this on their head. Hence, you no need to worry about this part.

## Why the No Cost EMI is so short?

If you notice the No Cost EMIs, they are restricted from 3 months to 6 months. Why not for more than 6 months? The reason is simple. It is the cost borne by sellers, retailers or brand. Hence, more the tenure of the loan means more they have to pay from their own pocket.

They kept it so short that you may feel some comfortable of paying it monthly without any interest or processing charges but at the same time they must sell the products.

Hence, at the end, it is a happy situation for you, banks (who not broke the rules of RBI) and sellers.

## Whether No Cost EMI is actually ZERO cost EMI?

You noticed in the above image (where I have highlighted the note) that Banks charge you taxes on such loans. Hence, this TAX is an additional cost to you which you have to bear on such purchases.

The applicable tax means the GST, which is 18% currently. Let us see how much it cost you in real after considering the tax.

You notice that even though the EMI is Rs.10,000 per month for 3 months, the actual EMI is more than this and you end up in paying more than Rs.30,000 at the end.

Hence, I may say that even though the seller borne the interest part of Rs.638, you still have to pay more than actual EMI, which these online selling portals show in such a way that you may notice it properly. Hence, seller borne Rs.638 and you have to cough the tax of Rs.114.

Hence, No Cost EMI is not completely ZERO interest or ZERO processing EMI, you still have to bear the tax on interest part. Check this cost before you jump into buying any products.

Parimala

Sir,I thought of buying smart TV worth 50000 from Amazon under NO cost emi opting for 3months ….how much will be my GST percentage and what will be my over all cost including GST…

Basavaraj Tonagatti

Dear Parimala,

Check with your bank for the same.

Harish Madaan

Excellent article Sir.

Is there a loophole in this?

I buy something off online retailer on no cost emi and avail the upfront discount then immediately call my card issuer to offer to pay them in full & cancel the emi transaction. That way I do not pay interest & get discount on the item.

This way cannot work with offline store as they offer the cashback in the last emi.

Basavaraj Tonagatti

Dear Harish,

It is good if the bank allow such preclosure.

Gurumurthy

Yes, I’ve been doing the same!

Amex, HDFC and ICICI doesnt have foreclosure/cancellation charges. (HDFC charges Rs. 99+GST as loan processing fee)

SBI has 2% of the principal amount as foreclosure/cancellation charges

Clari

From above explanations on the EMI breakage what I understood is that every bank charge some said amount for converting the total MRP into EMI, this amount is showed as the interest and is waved off. The sellers show this as No cost EMI.

I hope my understanding is right.

Basavaraj Tonagatti

Dear Clari,

Yes.

Samarpit Arya

But even after taxes no cost emi is still cheaper than conventional emi loans right?

Basavaraj Tonagatti

Dear Samparpit,

Yes.

Thamizhvanan

Here I can see many doubts.. these are can’t clarify by flipkart support as well as their financial team.. all should contact your respective bank credit card customer care.. they will be inform you to complete tenure of no cost EMI amount.. I got it from hdfc bank that is 1st month you may pay your interest amount because if you pay first credit bill cycle after 1 month of purchase.. complete tenure of emi you have to 18% gst for interest(I.e upfront discount) ex. If your upfront discount is 3000 you should pay 540 as gst.. it will be divided by total months.. starting with high ending very low.

Basavaraj Tonagatti

Dear Thamizhavanan,

Better you contact your banker.

Deepak Kumar

I have been searching about this for a long time. I had purchased a mobile in Diwali sale on no-cost EMI.

But, I observed that I’ve been paying a little extra than what they mentioned at the time of purchase.

I tried understanding it through the statements but was not convinced.

Recently I was planning again to buy a product on no-cost EMI. So, wanted to understand the whole picture of how it works.

I really thanks to you for providing all the information at one place like how bank charges and what can we do to minimize it.

Truly appreciate the way you explained the whole scenario with apt examples and calculations.

Basavaraj Tonagatti

Dear Deepak,

Pleasure.

Prachi Sharma

I can;t get your point…u r saying that we have to pay 10k equal installments for 3 months then how the retailer or brand has to pay the intrest amount on my purchase….??? thats we who are paying interest on our purchase….

Basavaraj Tonagatti

Dear Prachi,

Read once again.

Shiplum Agnihotri

Hello, I bought a TV for Rs. 26249 on Credit Card No Cost EMI scheme from Flipkart. They gave me upfront discount of Rs. 1887. In my invoice, the MRP shown is Rs. 24362. But they are charging me EMI of Rs. 2188 for a tenure of 12 months. 2188*12=26254 (MRP of TV). But in my card’s statement of November, there is another “Interest on EMI Rs 195.60”, and GST separate. This interest on emi is present in every monthly card statement.

This means I am paying 2188*12=26254 + around 2000 interest on emi + around 200 gst. Then how it is no cost emi?

Shouldn’t the EMI be calculated on discounted price, instead of original MRP (which is done by flipkart by dividing 26249 by 12).

According to me, EMI should be calculated on discounted price of Rs. 24362 (26249-1887) i.e. ?24362 divided by 12 which is equal to ?2030/month.

So if I pay EMI of ?2030/month for 12 months and pay interest charged by bank (which is cumulatively ?1887), I will be paying MRP of the product i.e. ?26249 (only GST extra)

But what flipkart has done is that he has divided the original MRP by 12 which is equal to ?2188 for 12 months, even after showing upfront discount of ?1887, and also in my invoice, MRP is shown as ?24362. But what I am totally paying is ?2188*12 = ?26256 + 1887 interest on emi + gst on interest extra (around 200 rupees).

Can you justify this? If there’s any problem, then whom to contact? Whose error is this? Flipkart’s? Or Bank’s?

Please reply urgently, because I feel like cheated as I am paying regular EMI instead of No Cost EMI.

Basavaraj Tonagatti

Dear Shiplum,

Yes, the EMI should be divided on a discounted price. You better approach Flipkart for this.

Hariom singh chouhan

Sir i bought a smartphone from Flipkart of ?17000 through sbi credit card for 6 month on no cost emi. Flipkart charged 16325 for these. There is emi of 2834 for a month and interest will include in it according to Flipkart.but sbi charged ?34 for 18% gst and ?192 for interest extra when i pay emi of ?2834.why?

Basavaraj Tonagatti

Dear Hariom,

This is where the issue is. GST you have to pay. However, I am not sure why SBI charged the interest. Please be in touch with Flipkart in this regard.

Kaveri

Sir how is Interest calculated monthly (318, 213, 107) in the above example. Pls clarify

Thanks

Basavaraj Tonagatti

Dear Kaveri,

It is like a regular EMI calculation for that period.

Kishore

As i ordered a new mobile with no cost emi for 3 months….but they charged a full amount..how is this..?

Basavaraj Tonagatti

Dear Kishore,

Check the company from where you purchased.

sandeep shiraswal

Hi Basavraj, I have bought new mobile with No Cost Emi offer through Hdfc credit card(amazon).However after 4 days i placed return order/cancel as i find its not working properly. so now will bank charge me for order cancellation.

Basavaraj Tonagatti

Dear Sandeep,

I am not sure the issue with Amazon. But I think bank will not charge for cancellation.

lalit singh

Thanks a lot for this article, this is quite helpful.

JANAKIRAM SAGABALA

Dear Basavaraj, Good morning and I am requesting you to, my credit card issue on emi (flipkart) thorugh SBI, they charges an amount of rupees from me like here, 1) FP EMI 01/18(EXCL.TAX.180.50) = 5000, 2) INTEREST ON EMI = 1002.80, 3) IGST DB @ 18.00% = 270.32.

I was taken an article original cost@ 89990/- with no cost EMI, is 80138/-. Here the bankers charged correct or not. Please clarify sir,

Basavaraj Tonagatti

Dear Janakiram,

As I said, GST you have to bear. Hence, in reality NO COST EMI means certain cost to you.

Syed Yawer Hussain

Really impressed! Thanks for the info

RAMESHWAR SHEWALE

Dear Basu,

Thank you so much for such very important information for specially for those who use to buy on online shopping portal like Flipkart and Amazon using No COST EMI option.

So, 18% GST on EMI interest is the same for those who use to buy normal emi with interest i.e. 13 -15% for 12-18 months ?

Basavaraj Tonagatti

Dear Rameshwar,

Yes, the GST rate is same.

Abiram Krishna

Great..very useful ..Thank u

Basavaraj Tonagatti

Dear Abiram,

Thanks.

sat

Hi Basu sir, Thanks for this article and this is really eye opener..

Usually when I am planning to opt for such EMIs, I properly inquire with bank or portals for such costs compare whether its worth and then place order. This article is really helpful and worth

Basavaraj Tonagatti

Dear Sat,

Great to know ðŸ™‚ Thanks for your kind words.

sangita tusa

thanks for this article

Imtiaz

excellent article….

Basavaraj Tonagatti

Dear Imtiaz,

Thanks ðŸ™‚

Srikrishna Raajan

Hi there, first I would like to thank you for this detailed write up and putting the extra tax on spotlight.

May I also request you to correct the line under the last breakup chart?

You notice that even though the EMI is Rs.10,000 per month for 3 years.

The last word might be a typo.

Basavaraj Tonagatti

Dear Srikrishna,

Uufff…Sorry and corrected ðŸ™‚

Daisy

Very helpful. Thank you

Basavaraj Tonagatti

Dear Daisy,

Pleasure ðŸ™‚

Anant oberoi

Excellent article …..and elaborately explained

Basavaraj Tonagatti

Dear Anant,

Thanks and suggest you to share this post with all those who are habitual of buying items online.

Manish

Thanks for this blog.

Prasanna

Superb article. Very educative. Rarely we realize these tricks!

Basavaraj Tonagatti

Dear Prasanna,

Pleasure ðŸ™‚

Sreekanth Reddy

Some banks like HDFC bank do not offer reward points for such purchases. It is better to consider which bank is offering reward points (like Yes Bank) so we can negate the GST paid on interest.

Basavaraj Tonagatti

Dear Sreekanth,

Thanks for your valuable inputs.