Spend carefully through credit card, stave off I-T notice

If credit card is used carefully and wisely, then it proves to be a very useful tool. But if you make very heavy transactions using credit card, then it can get you income tax notice. Many people have received emails or messages under E-Campaign for payment of heavy credit card bills.

Let’s find out how much spending using credit card can lead to a notice. Secondly – for which type of credit card transactions notice or clarification can be sought and thirdly – what do you do to avoid getting notice.

A person can have as many credit cards as he wants and can spend as much as they want, there is no limit on that. However, it is necessary for banks to report to the income tax department about your credit card’s high-value transactions, i.e. heavy transactions. If you pay a credit card bill of Rs 1 lakh or more in cash in a financial year, or if you pay a bill of Rs 10 lakh or more by any other method like cheque, NEFT or UPI, then credit card bills can get you income tax notice. The company or bank that issued the card has to give this information to the Income Tax Department. In this way, the details of high-value transactions done from your credit card reach the Income Tax Department. These details are also visible in your Annual Information Statement i.e. AIS.

It is important to use credit card the right way. Else, you may have to face a notice from the Income Tax Department. This can happen to you in many cases, like:

– You do not have any income but you are using the credit card in a fraudulent manner.

– When money is rotated from credit card, that is, you withdraw money from one credit card and pay the bill of another credit card. Many people do transactions or shopping for friends and family members from their cards in order to earn reward points and cashback.

– There is no relation between credit card expenses and income.

These conditions can get you a notice.

Income tax is levied on your income and not on expenses. But you should know the source of the money spent. Suppose you do not have any income. If you do not file ITR or have low income and file NIL return, but use credit card for 10-15 lakh rupees every year, then you can get income tax notice. The purpose of sending notice is to know the source of money spent in paying credit card bills. The department checks whether you are evading tax or not. If the income declared in the return justifies the credit card expenses, then there is no need to worry. You simply have to respond to the notice of the Income Tax Department.

However, if the expenses incurred in paying credit card bills were part of your income, which you have not shown in ITR, then you will have to pay both tax and penalty on this income.

Suppose you made your friends and relatives shop using your card. If you received money from them and you paid the credit card bill, then you will have to provide proof of this. In this case, bank account statement helps you. If you have received a notice under e-campaign, then you have to login to the website of Income Tax Department. In the top most tab, click on ‘Pending’ In the ‘Actions’ section, click on Compliance Portal. In the new window, click on e-Campaign and submit your feedback. Instead of answering the notice yourself, seek the advice of a tax expert and get the reply filed by him.

If you do not want to invite the notice of the Income Tax Department, then do not indulge in overspending through credit card. You can set a limit on expenses to avoid overspending. Avoid giving your credit card to your friends for shopping. If you receive a notice for spending through credit card or for making a huge bill payment, then do not ignore it. Otherwise the expenses can be considered as undisclosed income and tax can be levied on you.