• Spending too much on credit card?


• You may get Tax Notice

Credit Card Spending Limits: If you use your credit card not only for small expenses but also for paying large amounts, then this news is important for you. This can put you on the radar of the Income Tax Department. The Income Tax Department is now more closely monitoring high value transactions and especially significant spending through credit cards; As a result, you are at increased risk of receiving a tax notice in such cases. But why “text-align: justify;”> Crude oil explosion! If oil stays above 100 dollars, will the Indian rupee collapse? What will be the general effect?

Giving wrong information can be costly

The Income Tax Department receives information from banks and financial institutions through Annual Information Statement and Statement of Financial Transactions (SFT). This information details the total amount you spent using your credit card during the year. If your expenditure does not match the income declared in your income tax return i.e. ITR, the tax department may issue a notice seeking clarification. This shows that unclear filings and payment records can result in higher taxes.

Explained by experts with examples

Sujit Bangar, founder of ‘TaxBuddy’, took to Twitter and shared a post. In it, he explained the whole process in detail by giving the example of a taxpayer named ‘Pratik’. He explained that when Prateek did not file his income tax return, a major problem arose. However, information about his financial transactions came to light through the ‘SFT’ system; This system monitors large amount transactions such as credit card payments. The Income Tax Department raised objections to Prateek’s credit card overspending; As a result, all transactions made through credit cards linked to his PAN number were classified as ‘personal expenditure’. On this basis, his taxable income was increased by Rs.16.6 lakhs.

Challenging for any taxpayer

Credit cards are often used by family members or for business- expenses. But from a tax perspective, this card is linked to the PAN number of the main cardholder; This means that no matter who actually spends using the credit card, any tax notices are sent directly to that primary cardholder. Lacking proper documentation, Banger noted, it can be challenging for any taxpayer to prove that their credit card spending wasn’t entirely theirs.

Now documentary evidence is mandatory

In this case, the turning point was neither a technical error nor a legal argument; So it was incompleteness of documentary evidence. When the case came to light, he successfully proved that the credit card in question was used by several individuals. Which included his father, his brother and himself.

To substantiate this claim, Pratik submitted various documents; This included his bank statements, evidence linking other users to the card, income tax returns and affidavits of persons. These documents clearly established who made the payments using that credit card, the source of the funds and the specific purpose behind each transaction. The ITAT accepted this disclosure and on the basis of the evidence adduced, the entire amount of ₹16.6 lakhs in dispute was disallowed.

What exactly was the case?

This case highlights the fact that, in the absence of proper documentation, taxpayers can face huge difficulties in proving that they were not the only ones to incur huge expenses on their credit cards. Consequently, if other persons have used your credit card, it is imperative that the cardholder keeps strict records which should include proof of payment, bank records, explanatory notes and documents confirming the purpose behind such use.

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