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Income Tax Alert! Taxmen watching your credit card spending; overuse of cards may attract a tax notice

Amitava Chakrabarty
income tax, Income Tax Department, income tax notice, credit cards, credit card bills, credit card reward points, cash backs, credit card overspending

Adib (name changed) came to Delhi from Srinagar to build his career in 2008 and, after doing a journalism course, he joined a company in August 2009 with a salary of about Rs 25,000 per month. As he worked for about seven months during the financial year 2009-10 and was staying in a rented accommodation, his salary was below the taxable range.

However, in the initial years in Delhi, he was getting financial assistance from his family and to earn reward points, he was buying things through his credit card not only for himself, but for his newly-made friends also, resulting in the total credit card spending crossing Rs 2 lakh during the financial year.

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In the year 2013, he got a notice from the Income Tax Department for not filing income tax return (ITR) for the financial year 2009-10. The reason given for sending the notice was that he had paid credit card bills of over Rs 2 lakh in that year.

In reply to the notice, he mentioned that he was getting money from his parents as financial assistance during the initial years in Delhi, which he was using to pay bills of his credit card. As getting money from parents is neither considered as income nor as gift for tax purpose, the Tax Department didn’t pursue the matter further.

But Adib learned a lesson that overspending through credit cards just to earn reward points was not a good idea.

So, you should never spend more than your disposable income through credit cards to earn reward points or to get cash backs even on request from family and friends to buy things for them or booking tickets etc in exchange of money.

Also Read: Enjoying cash backs on payments apps, online deals, card payments? Beware! You may get a tax notice

Not only spending, after demonetisation norms are made even tighter, and now even if you pay credit card bills of over Rs 1 lakh in cash, you may get a tax notice.

Moreover, the Income Tax Department can even collate the data it has of cash payments, as all credit cards are linked to permanent account number (PAN) of the holder.

So, it’s better to be cautious while using credit cards, so that you don’t end up getting a notice from the Income Tax Department.