Although using a credit card to pay taxes is profitable and easy, there are costs and hazards involved that should be carefully examined.
The operation of credit card tax payments
The Income Tax Department offers a number of online payment options, such as credit card, debit card, UPI, and net banking. You will be responsible for paying the tax in your next billing cycle if you decide to use a credit card. Because you do not have to spend your whole bank account at once, it offers short-term liquidity, which is preferable when cash flow is limited.
The benefits of owning a credit card
Convenience is a major benefit. You may fulfill deadlines on time by making instant payments using authorized payment methods. On such significant purchases, credit card companies may additionally provide milestone incentives, cashback, or reward points. Paying taxes using a credit card might provide salaried people who need cash for other bills some breathing room until their next pay period.
Interest fees and expenses incurred
Despite being simple to use, the fees are considerable. Processing fees might range from 0.4% to 1%, depending on the bank and payment provider. High interest charges, usually between 30 and 40 percent a year in India, might result from late payments on credit card bills. This may turn a seemingly wise decision into a costly error that might eliminate any gains.
Your credit report’s impact
If the tax amount is high, using a credit card to pay for taxes may momentarily increase your credit usage percentage. Overuse might lower your CIBIL score, particularly if you do not pay your bills on time. On the other hand, paying off high-value purchases in advance may improve your credit history and show that you are a responsible borrower, which might make it easier for you to get loans in the future.
When it is logical—and when it is not
If you can pay the whole amount on time and the incentives or cashback exceed the processing fees, using a credit card to pay income tax may be feasible. This might, however, make your financial situation worse if you already have a lot of credit card debt or if you often carry loads. UPI or online banking is still safer and more cost-effective for the majority of taxpayers.