Avoid using a credit card to pay tax on the new e-filing portal. here’s why

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Avoid using a credit card to pay tax on the new e-filing portal. here’s why

Highlights

  • Failure to repay the entire credit card bill by the due date will result in finance charges on the unpaid bill
  • You have to pay a 1% penalty on the tax due if you miss the tax prepayment and another 1% if you miss the income tax filing deadline
  • Failure to repay the entire credit card bill by the due date will result in finance charges on the unpaid bill

New Delhi: The Central Commission for Direct Taxation (CBDT) recently launched the new online income tax declaration portal. The new website has many features that will make it easier for taxpayers to file their returns. One of the features of the new portal is the addition of different payment options.

Taxpayers will be able to pay tax via netbanking, UPI (unified payment interface), RTGS (real-time gross settlement), NEFT (national electronic funds transfer) and even credit cards. It should be noted that until now, taxpayers had the possibility of paying only via the netbanking of large banks in the private and public sector. Even most small private sector banks or foreign and cooperative banks were not included. The added options will make it easier for taxpayers to file their returns.

It is no secret that for many taxpayers it was difficult to make an online payment via net banking since their banks were not part of the IT department system. According to the chartered accountants, some clients even checked if they could transfer the money to them and if they could pay on behalf of the client. With more payment options, especially credit cards, it will be more convenient for taxpayers to pay taxes.

While the credit card will now be one of the payment options, experts advise taxpayers to use it as a last resort. Paying credit card bills is a crucial financial task and failure to do so can lead to high interest, debt trap and low credit score. If you plan to use a credit card to pay taxes, be sure to repay on time.

Not paying credit card bills on time has serious consequences. In addition to impacting your credit score, delaying a credit card payment will cause you to pay late fees. Your next account statement will also include charges for late or missed payments. Also, if your payment is late each month, you will be charged late fees or less than the minimum payment.

Also remember that you have to pay a 1% penalty on the tax due if you miss the tax prepayment and another 1% if you miss the income tax filing deadline . Usually, taxpayers can file late returns until December 31. This year, the deadline for late returns has been extended by one month. If a taxpayer ends up with an unpaid revolving credit card, the interest charges will be much higher.

Failure to repay the credit card bill in full by the due date will result in a finance charge on the unpaid bill. Fees typically range between 30-49% per year on the unpaid credit card bill. Failure to pay the credit card bill in full may also result in the revocation of the interest-free period on new credit card transactions.

Also, the finance charge or annual percentage rate on credit cards is usually over 3% per month. In some cases, it can even reach 4%. While the government only charges simple interest on the tax owed, credit card issuers charge interest on the interest (compound interest).

For example, if you pay Rs 50,000 in tax using a credit card and can only repay Rs 25,000 each month, you will end up paying Rs 2,364 in finance charges over a period of three months. In addition, GST will also be charged on interest. The government, on the other hand, charges simple interest on the unpaid amount, which means that if you delay payment of Rs 50,000 for three months, a penalty of 1% will be levied every month and you will end up paying Rs 1,500.

While the new e-filing portal will offer a credit card payment facility, use your credit card to pay tax only if you can repay the issuer before the due date.

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