July 3, 2025 · 11 mins read
Santhosh Kumar
As a frequent Credit Card user, if you are involved in making any high-value purchases, it will surely attract some amount of tax. Read further to know more about income tax on Credit Card transactions and how you can save yourself from an income tax notice.
We all require financial aid at some point in our lives – be it a medical emergency, wedding, education, or any other reason. In the financial ecosystem, you will come across a variety of options, but one of the ways to avail instant funds is through a Credit Card.
Credit Cards are usually a popular option, as they give you the ability to purchase now and pay later. Subscribing to a Credit Card is also not difficult, as there is minimum documentation involved in the application process. If you meet the income eligibility and have a decent credit score, you can easily get a Credit Card. One of the significant aspects you need to pay attention to is the income tax applicable to Credit Card transactions. Ensure you do not exceed the spending limit, as the Income Tax Department monitors credit card transactions. Every Credit Card user's detail is linked to their PAN Card, and every expense is managed electronically by the Government. Any high-value transaction needs to be reported during the ITR filing. You are likely to receive a notice from the IT department in the following scenarios:
1: If you are paying Credit Card bills of over Rs 1 lakh.
2: In case you are using the card to purchase any product or service costing Rs 10 lakh.
Moreover, it is necessary that you mention this amount at the time of ITR filing. In fact, you need to file all expenses incurred through the Credit Card. Once you file the expenses, you are liable to pay income tax on your Credit Card. Thus, overspending through Credit Cards should be avoided, even though it may fetch you reward points.
Credit cards offer a compelling advantage to users while they go for large purchases. Credit cards help customers use the high spending limits that they don't get in debit cards. A credit card should be used cautiously. However, credit cards can be invaluable in emergencies, such as paying a mobile phone bill that's due before your next payday. At some point, we all struggle with managing finances at the end of the month, and during those times, credit cards come in handy. Other than that, we can prudently use credit cards for medical emergencies, weddings, education, or other purposes. In the modern-day financial ecosystem, there are a variety of options launched by banks, but credit cards have an edge over all other tools because they only help you access instant funds when you need them.
Credit cards have always been a popular financial instrument due to their ability to allow customers to buy now and pay later. Applying for a credit card is also very easy and requires minimal documentation. If you meet a certain income requirement and have a decent credit score, you are eligible to apply for a credit card.
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An important aspect to consider is the income tax implications of credit card transactions. Remember, you should not exceed your spending limit, as the Income Tax Department is monitoring all credit card transactions. Your credit card details are linked to your PAN card, and the government electronically tracks all your expenses. As per I-T rules, high-value transactions must be reported during income tax return filing.
According to the law, banks, companies, registrars, or post offices are required to report high-value transactions to the I-T Department using Form 61A, also known as the 'Statement of Financial Transaction.' The tax department then scrutinizes these transactions to ensure individuals have correctly reported credit card transactions and other financial activities in their income tax return (ITR).
As discussed in the article, there are several advantages to exploiting a credit card, but it is also important to be cautious with spending to avoid tax notices. The Income Tax Department typically issues notices based on the data recorded in its tax system. To avoid such notices, taxpayers must ensure that their tax returns are filed on time and that declared income in the ITR matches the information in Form 26AS.
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Below are some of the measures taken by the department to trace high-value transactions:
The Department has upgraded Form 26AS to reflect Specified Financial Transactions (SFT). Moreover, it has introduced the ‘Annual Information Statement (AIS)’ where you can view all the financial information. The specified institutions, such as registrars, banks, post offices, stock exchanges, etc., must report transactions exceeding the specified threshold to the income tax department. These transactions are then reflected in the AIS portal so that the taxpayer can voluntarily disclose all the information based on the AIS information.
To trace high-value transactions, the government has proposed that the banks must deduct TDS at 2% on cash withdrawals of more than Rs 1 crore during the financial year. If the person has not filed an ITR for the last three financial years, then TDS at 2% shall be deducted for cash withdrawals exceeding Rs 20 lakh. For cash withdrawals exceeding Rs 1 crore, TDS will be deducted at 5%.
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An individual is required to file an ITR if income exceeds Rs 2,50,000. However, from April 1, 2019, ITR filing is mandatory for individuals who have entered into certain specified high-value transactions, even if the income is less than Rs 2,50,000. For example, deposits in one or more current accounts maintained with a bank or cooperative bank are more than Rs 1 crore, foreign travel expenditure exceeds Rs 2 lakh, or electricity bill expenditure exceeds Rs 1 lakh during the year.
Firstly, a taxpayer must verify that the SFT transactions reported in the Form 26AS are correct. Subsequently, a taxpayer must ensure that they report the high-value transaction while filing the ITR and that the tax liability on it has been accurately calculated. Any error or discrepancy in reporting such transactions may result in an income tax notice.
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Tax experts say there are no specific rules governing the use of credit cards for spending. However, it is mandatory for banks to report high-value transactions to the Income Tax Department.
“Banks, companies, registrars, and post offices are some common entities that are mandated to report their credit card transactions whenever it occurs in every financial year. That is why these entities fill up Form 61A, which is a Statement of Financial Transactions. Ordinary taxpayers also fill up Form 26AS to report high-value transactions, including credit card transactions,” says Abhishek Soni, Co-founder and CEO of Tax2win, a Fisdom company.
Chopra says that the issue is not with spending with a credit card. As long as the spending and bill repayment are through digital channels and the individual has made purchases as per their declared taxable income, the taxman doesn't bother. However, cash payments above Rs 1 lakh may be flagged.
Secondly, high-value transactions are also flagged, and the taxman could look into such transactions in specific cases where a single spend is disproportionately high for the individual’s income.
If you fall into any of the above-stated scenarios, then it will be better to prepare for substantial penalties, as you know that the Income Tax department can trace the credit card expenses and will definitely send you a legal notice for excessive credit card bills of yours.
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1: The payment of Income Tax via credit card will allow the user to file the challan online and will provide an immediate acknowledgment of remittance.
2: A receipt in the form of a challan will be produced, which will include the Corporate Identity Number (CIN) that can be downloaded and printed for reference and record.
3: Individuals can remit taxes on behalf of the firm, company, and others from a desktop at any time.
4: Transaction charges at petrol pumps, gas agencies, and railway tickets will be removed.
5: Individuals will receive tax rebates if they use their credit/debit cards or electronic means to pay a portion of their utility bills.
6: The Merchant Discount Rate (MDR) is a fee charged by banks to merchants for accepting payments through credit/debit cards. The government has proposed a reduction in the MDR to encourage merchants to accept payment through cards.
7: The government will provide a tax rebate to merchants who have performed up to 50% of their transactions through cashless means.
8: A 1% to 2% reduction in VAT will be given to merchants on cashless transactions.
9: The interchange fees on credit/debit cards will be standardized across the nation for better adaptability.
10: The PayGov India payment gateway will be the largest integrated payment gateway in India to make a variety of payments, including income tax, via credit cards. This system will simplify the entire process of income tax payments online.
11: Payment of income tax via credit card will give both the taxpayer and the government an accurate record and historical data of payments.
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1: Login to the NSDL-TIN website.
2: The individual will need to select the challan applicable to him/her, i.e. ITNS 280, ITNS 281, ITNS 282, or ITNS 283.
3: The taxpayer will need to enter the PAN/TAN as applicable. There will be an online verification of the PAN/TAN entered.
4: Once the PAN/TAN is authenticated, the taxpayer will be allowed to fill up the challan details, such as the bank through which the payment is being made, the accounting head under which the payment is being made, name and address of the TAN/PAN, etc.
5: After the submission of the data, a confirmation screen will appear. Once the taxpayer confirms the data entered, he/she will be redirected to the net banking website of the bank.
6: The taxpayer will need to log in to the net banking site with his/her user ID and password to enter the payment details for the transaction.
7: After successful payment, a challan counterfoil will appear containing the CIN, the transaction amount, and the bank through which the payment was made. The challan counterfoil works as proof of payment of tax.
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Yes, you can use credit/debit cards, UPI, and net banking to pay your taxes online.
Yes, the net banking facility allows you to schedule a later date for your tax payment. However, credit/debit card payments are not accepted for this facility.
Yes, using a credit card to pay your income tax is completely secure. The payment portal/gateway used to process payments is appropriately protected and secured.
No, there haven't been any recent modifications to the regulations governing credit card tax payments. However, it recently came to light that all credit card payment processors have standardized the convenience fee for credit cards in the range of 1.87% to 2%.
There are no outlined eligibility requirements. You can use any valid credit card to make an online tax payment.
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