A credit card is a plastic or metal card that is issued by financial institutions and it allows you to borrow money from a pre-sanctioned limit to pay for your purchase and this limit is decided by the institution issuing the card and it will be based on your credit score and history.

If you are a recurrent credit card user and usually do high-value purchases, it will attract Tax on Credit Card transactions.

Now a day’s credit cards have become the most helpful method for making payments, whether it may be of purchasing a fashion accessory, recharging your mobile, or doing online shopping. Credit cards are used for one-time payments. The Credit card comes with a grace period between purchase and payment and during this period bank does not charge any interest.  

For getting a credit card there are some conditions like your income must meet eligibility criteria or you have a decent credit score. One of the most important things you need to notice is income tax applicability on credit card transactions also do check on a spending limit, as the income tax department monitors the credit card transactions.

Cases where you will receive a notice from the income tax department

1. CBDT says to banks to report if payments made of an amount aggregating to Rs. 1 lakh or more in cash towards credit card dues will be reported in case of credit card income tax scrutiny.
2. Similarly, the CBDT also has made it mandatory for a bank or for a cooperative bank that they have to report to them if anyone pays Rs. 10 lakh or more to settle their credit card dues in a financial year. 

It is necessary to file all expenses incurred by using the credit card and when you have to file the spendings on which you are liable to pay credit card tax. 

Therefore, you should avoid overspending money through credit cards, whether it may get you to reward points or not.

How income tax department is tracking your transaction?

How income tax department monitors your money?

Banks, companies, registrars, or post offices must report high value transactions to the Directors of the Income Tax Department. In income tax notice high value transaction, different authorities are required to intimate high value transactions to the director of Income-tax by filing form 61A, it is also called statement of financial transaction. By this, the income-tax department comes to know about your high value transactions and whether you have filed your return income or not.

For keeping track of high-value transactions IT department has developed a statement called Annual Information Return (AIR) on the basis of this statement, tax authorities will collect information. For tracking such transactions, whether you have done through credit card or any other mode, the income tax department has revised form no. 26AS from June 01, 2020, and Part E of the form 26AS displays information about high value transaction.

How do you avoid income tax notice India?

You may get a notice if you have done high-value transactions. We know credit card gives us lots of flexibility, but you should also take care of excess spending as it will lead to generating income tax notices. The income tax department may ask you to mention a source of funds for making such a high value transaction.

you can check income tax notice online by login into the e-filing portal. You can avoid such notices by sending a satisfactory reply mentioning the source of income and if the department agrees, your case gets closed. Your all credit card income tax details or tax on credit card which are declared in income tax returns should be sync with form 26AS, form 26AS shows high-value transactions. And after checking with AS26, they ensure that the credit card transactions do not cross 2 lakh in a financial year and if you are making high value transactions you should also mention at the time of ITR so that you can avoid income tax notice for cash transactions.

For more details and for more assistance you can visit Tax Advisory or contact us directly on 8077361475.