- You can use credit card to pay taxes
- Also using various options like net banking, UPI or debit cards
- What exactly are the benefits of this?
Income Tax Bill: As the last date for filing Income Tax Returns draws nearer, taxpayers are in a rush. If the tax filing deadline is just around the corner and you still don’t have the necessary funds in place, you can use your credit card to pay your taxes. Few people know that various digital options like net banking, UPI or debit cards can also be used to pay Income Tax. Speaking to a media outlet, BankBazaar.com CEO Adhil Shetty said, “The Income Tax Department has no objection to taxpayers using credit cards to pay their tax dues. Payment gateways provide you with multiple digital payment options; these include UPI, net banking, as well as debit and credit cards.”
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What exactly are the benefits of this?
If the tax deadline is just around the corner and you are short on cash, this method can be a very practical solution. Credit cards usually have an ‘interest-free period’ of 30 to 45 days, which allows you to defer tax payments until the next billing cycle. Availability of this interest free period depends on whether you pay your entire overdue bill before the due date. Certain ‘premium’ or business use credit cards such as HDFC BizBlack offer rewards points or ‘cashback’ on payment of Income Tax. Paying a large amount of tax can help meet the ‘Milestone Spend’ requirement associated with your credit card’s annual spending goals; As a result, your annual membership fee is also likely to be waived.
It is also necessary to know its disadvantages
Income tax payments by credit card generally incur a ‘processing fee’ of 0.72% to 1.25%; And in addition to this charge, 18% GST is also applicable on it. If you fail to pay your credit card bill on time, you may end up incurring huge interest charges; These interest rates can range from 36% to 42% per annum. Paying a large amount of tax can greatly increase your ‘Credit Utilization Ratio’ (CUR), which may lower your ‘Credit Score’ over time. For example, if your credit card limit is ₹2,00,000 and you pay income tax of ₹1,50,000, your CUR instantly increases to 75%. Credit bureaus view a CUR of more than 30% as a potential ‘credit risk’. They believe that you are over-relying on credit cards to meet your financial needs. According to the proposed new rules, which will come into effect from April 1, 2026, if your annual credit card bill exceeds ₹10 lakh, the Income Tax department can scrutinize it.
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