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Home / Money / Personal Finance /  Avoid credit card for paying tax if you have a choice

The Central Board of Direct Taxes (CBDT) will launch a new e-filing portal on 7 June. The new website has many features that make it easier for taxpayers to file their returns.

One of the things that stands out is the addition of payment options. Taxpayers will be able to pay tax via netbanking, UPI (Unified Payments Interface), RTGS (Real-Time Gross Settlement), NEFT (National Electronic Funds Transfer) and even credit cards.

Until now, taxpayers had the option to pay only via netbanking of large private and public sector banks. Most private sector, foreign and cooperative banks are not part of it. Increasing the options will make it easier for taxpayers.

“For many taxpayers, it was difficult to make payment online as their banks were not part of the I-T department’s system. Some clients even checked if they can transfer the money to us and whether we can pay on their behalf. More payment options, especially credit cards, will make it convenient to pay tax," said Gautam Nayak, partner, CNK & Associates LLP.

If you plan to use a credit card, ensure that you repay on time. Don’t use a credit card to borrow because you don’t have sufficient money to pay the tax by the deadline. Revolving credit card outstanding is more expensive than delaying tax payment.

“You have to pay a 1% penalty on the tax due if you miss the advance tax payment and another 1% if you miss the deadline for filing income tax. Usually, taxpayers can still file belated returns until 31 December. This year, the deadline for late returns has been extended by a month. If someone revolves credit card outstanding, the interest charges will be far higher," said Arvind Rao, a chartered accountant and a certified financial planner.

The finance charges or the annual percentage rate on credit cards are typically upwards of 3% a month. In some cases, it can even be as high as 4%. While the government charges simple interest on the tax due, credit card issuers charge interest on interest.

Suppose you pay 50,000 as tax using a credit card and can repay 25,000 each month, you will end up paying 2,364 in finance cost over three months. GST will be charged on the interest as well.

The government, on the other hand, charges simple interest on the outstanding amount. If you have delayed paying 50,000 for three months, and there’s a 1% penalty each month, you will end up paying 1,500.

So, use your credit card to pay tax only if you can repay the issuer before the due date.

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