The Central Board of Direct Taxes (CBDT) has launched a new income tax e-filing portal on 7th June 2021, by bringing in newer features and making it easier for taxpayers to file their income tax returns.
Can I now pay income tax with a credit card?
Yes, you can now pay your income tax with a credit card. Until now, taxpayers could pay tax only through net banking facilities available from large private and public sector banks. Most of the other private sector, foreign and cooperative banks were not considered part of this payment gateway, making it difficult for many taxpayers in India to make online payment as their banks were not part of the I-T department’s system.
This hurdle made taxpayers opt for the cash payment of their taxes. The new e-filing portal has brought in new features and helps taxpayers overcome this hurdle.
One of the key highlights of the new e-filing portal launched is the option of increased payment modes. Apart from Net banking and UPI (Unified Payments Interface), taxpayers will also be able to pay tax through RTGS (Real-Time Gross Settlement), NEFT (National Electronic Funds Transfer) and credit cards.
What are the benefits of paying tax through your credit card?
To help curb the flow of black money and favour the use of non-cash transactions in making Digital India, the Government of India has encouraged individuals to file their income tax returns using their credit cards.
Taxpayers who file returns using their cards will receive added tax benefit options. Such tax payment also helps in making the overall accounting process easy and hassle-free, thereby increasing the processing speed of the transaction. It also helps authorities in having a record of the transaction history of taxpayers. It will help an individual to improve their creditworthiness and be part of the financial system in India.
By encouraging payment of tax through credit cards, the Indian Government also wants to encourage non-cash transactions, thus discouraging tax avoidance among individuals and reducing the flow of counterfeit currency.
Is it advisable to pay tax using your credit card?
It is not advisable to pay tax through your credit card if you can avoid it.
Though paying through your credit card would help you to keep track of your transaction history, improve credit access and get reward benefits from the Government, there are other downsides to consider as well. Unlike paying taxes through a bank account transfer, credit card payment is not free of cost. You will be charged a fee, which is a percentage of your tax payment that depends on your credit card payment provider.
If you still intend to pay tax through your credit card, make sure that you repay the same on time. Never use your credit card to borrow. If you do not have enough money to pay the tax by the deadline, then any revolving credit card outstanding would be more expensive than paying delayed tax.
Note that a penalty of 1% is levied on the tax due for any miss on the advance tax payment and an additional 1% for missing the deadline for filing income tax. Taxpayers on a normal basis have the option of filing belated returns until 31st December following the financial year (due to the Covid-19 crisis, the deadline for the year has been postponed this year). So, if someone keeps their revolving credit card outstanding, then a higher interest charge is levied.
Also, the finance charges (annual percentage rate) on credit cards in India are normally in the range of 3% a month which could even go up to 4% depending on the service provider.
The government charges simple interest on any tax due. However, credit card service providers charge interest on interest, plus GST on the interest which would be on the higher side if there is any delay in payment of credit card outstanding, making any credit card outstanding a very expensive affair. So, it is considered prudent to use your credit card to pay tax only if you have the financial discipline and capability to repay the credit card payments before the due date. Otherwise, you would end up paying higher interest than the income tax levied in some cases.
The new e-filing portal has brought in new features for enabling taxpayers to pay and file their income tax returns in an easy and hassle-free manner. One key highlight is increasing the number of payment gateways.
Apart from net banking, users can now pay tax through UPI, RTGS, NEFT and credit cards. However, one should avoid paying tax through their credit card if possible unless they have been regular in repaying their credit card dues. Otherwise, they would have to pay high credit card interest charges.