Avoid credit cards to pay taxes if you have a choice

The Central Commission for Direct Taxes (CBDT) will launch a new e-filing portal on June 7. 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 their taxes through netbanking, UPI (Unified Payments Interface), RTGS (Real-Time Gross Settlement), NEFT (National Electronic Funds Transfer) and even credit cards.

Until now, taxpayers were only able to pay through the netbanking of large private and public sector banks. Most private sector, foreign and cooperative banks are not included. Increasing the options will make it easier for taxpayers.

“For many taxpayers, it was difficult to make payments online because their banks were not part of the IT department’s system. Some customers even checked if they could transfer the money to us and if we could pay on their behalf. More payment options, especially credit cards, will make paying taxes easier, ”said Gautam Nayak, Partner, CNK & Associates LLP.

If you plan to use a credit card, be sure to pay off on time. Don’t use a credit card to borrow because you don’t have enough money to pay the tax by the deadline. An outstanding revolving credit card costs more than delaying the payment of taxes.

“You have to pay a penalty of 1% on tax due if you miss the prepayment of tax and another 1% if you miss the tax filing deadline. Usually, taxpayers can still file late returns until December 31. This year, the late return period has been extended by one month. If someone turns over a delinquent credit card, the interest charges will be much higher, ”said Arvind Rao, chartered accountant and chartered financial planner.

Finance charges or the annual percentage rate on credit cards are usually more than 3% per month. In some cases, it can even reach 4%. While the government charges straightforward interest on the tax owed, credit card issuers charge interest on the interest.

Suppose you pay 50,000 as tax using credit card and can refund 25000 every month you will end up paying 2,364 in financing costs over three months. GST will also be charged on interest.

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

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

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About Joan Ferguson

Joan Ferguson

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