Paying Income Tax Through A Credit Card: All You Need To Know

Key Takeaways:

• Using a credit card to pay income tax offers a quick and hassle-free way to complete transactions, especially when facing cash flow issues

• Certain credit cards offer reward points, cashback, or other perks when used for tax payments

• Ensuring transactions are made through verified portals, using strong PINs, and avoiding public Wi-Fi can help prevent fraudulent activities when paying taxes with credit cards

The Government of India has been working to simplify the tax process for citizens in recent years. This has become even more effortless with the introduction of online e-filing and payment systems. But what happens if you run out of cash during tax season? 

In other situations, a credit card helps manage a lack of funds, but can you use a credit card to pay your income tax? Definitely! Income tax payment through a credit card is a convenient option that offers potential rewards. Let’s explore how to use a credit card to pay taxes, tips to maximise rewards, its impact and fraud protection.

Online payment methods have eased the process of tax payments through the E-filing portal. You can now pay tax using a credit card through the official income tax website by following the steps below.

After filing the Income Tax Return (ITR), you must generate a challan containing the details about the amount and a unique serial number. Further, follow these steps:

1. Visit the official Income Tax online portal. 

2. Go to tax payment.

3. Click on ‘Pay Tax’.

4. Choose the payment option as a credit card.

5. Input your challan details and card information.

6. Confirm payment and you are good to go!

After generating the challan, you have upto 15 days to complete the tax payment. In case you are short of funds, your credit card will help you make the payment successfully. But, you must consider using your credit card only if you expect to pay back the amount before the credit card's due date. 

After all, your card might come with a higher interest rate. This can overall increase your debt burden. Additionally, excess credit card usage can lead to higher credit utilisation ratio (CUR). So, think of all these factors and take the right call. 

Check Also: How Credit Card Payments Affect Your Home Loans

Many credit card companies and banks offer rewards specifically for tax payments, making the process more advantageous. Here are some credit cards that actually reward you for paying taxes. 

Check out some of the best credit cards to pay taxes from top banks:

• HDFC Bank credit cards: They offer specific business credit cards to pay your taxes such as BizBlack, BizPower and BizGrow. These cards come with rewards such as 5x accelerated reward points, travel insurance, and complimentary services. 

• SBI Credit cards: Credit cards such as SBI Vistara credit card and SBI SimplyCLICK also offer rewards on payment of taxes.

• ICICI Bank: ICICI Bank credit cards such as the Coral credit card offer rewards for paying over a threshold amount 

• Axis Bank credit cards: The Privilege and Enrich credit cards provide reward points on every transaction. 

Tax payments are easier with credit cards as they allow you to repay the amount in EMIs and add to your convenience. For expenses made via credit cards, you also get a grace period, which gives you more time to get your finances back on track. 

Using a credit card also provides you with a digital record of the transaction, which you can use as proof of payment. But do you know that little inaccuracies can increase your tax liability? Find out how. 

Tax filing and payments are easy with credit cards but do you know some common mistakes can increase your tax liabilities? The tax department checks credit card usage frequently and any expense that crosses the limit inaccurately reported in your ITR is taxed. 

Let’s say Mr Suresh is a businessman who spends more than ₹1 lakh for some purchases. Further, he spends more than ₹10 lakh to buy goods. However, if he does not report this accurately in his ITR, this credit card usage will be taxed, increasing his tax liability. 

If you are spending more than your declared income, credit card expenses will start taxing you, quite literally! Ensure that there is not a huge gap between your expenses and declared income. 

Check Also: How to Pay Insurance Premiums Through Credit Cards?

When paying taxes using credit cards, your information can be stolen or copied for fraudulent purposes. To avoid this, here are some tips:

• When you pay taxes on the respective official websites, ensure the site is verified. The site must have an ‘https’ prefix. Also, avoid using public wi-fi when providing credit card details on such servers.

• Check your credit card statements every now and then to identify any fraudulent payments.

• Use strong PINs and passwords on your credit cards for additional security.

• Set transaction alerts with your credit card. This way, you will be aware of your credit card usage.

• SMS, emails, or calls claiming to be from the IT department and requesting credit card details is a type of fraud. Stay alert, and never share your details.

The Income Tax Department made some changes regarding payments in June 2024. Income tax payment methods including debit/credit cards, now come with certain fixed charges. It's important to understand that tax on credit card payment in this context refers to the processing or convenience fees charged by banks or payment gateways—not an actual tax levied on the transaction, but an additional cost to be aware of.

As soon as you select the payment method, the payment gateway will redirect you, and applicable charges will add to the tax amount. Check out the credit card fee for paying taxes:

Paying taxes with a credit card provides benefits such as improved cash flow, reward points, and convenience. You can split your expenses into EMIs and get more time with an interest-free grace period. 

Yes. Credit card companies, banks and NBFCs often charge fees when you use credit cards to pay taxes. This fee can range from 1% to 3.5%. W

Some credit cards offering the best rewards for tax payments include HDFC Bank BizBlack credit card, SBI Vistara credit card, SBI Prime credit card and ICICI Bank Platinum credit card.

Credit cards help manage cash flow as you can pay for short-term needs as per your card limit. With reporting and analytical tools, you can keep track of your spending. You can also benefit from the grace period with interest-free borrowing. Along with this, you get hold of reward points and discounts, too. 

Yes. It is secure to pay taxes using a credit card when using it responsibly. Try to keep your Credit Utilization Ratio low or else your tax liability may increase your financial burden.

Yes. Many banks and credit card companies allow you to claim rewards for paying taxes with your credit card. 

Yes. Some cons of credit cards for taxes include convenience fees, high interest rates, impact on Credit Utilisation Ratio (CUR) and the risk of overspending.

Return to Goal