Credit Card Tips: In today’s world, credit cards have become an important part of our financial lives. In times of emergency, when money is needed suddenly and other options are unavailable, a credit card proves to be a great help. It’s a card that allows you to spend first and pay later. Nowadays, its use has become common for things like restaurant bills, online shopping, travel bookings, and OTT subscriptions.
However, using a credit card for every expense is not always beneficial. In some situations, using the card can negatively impact your credit health, CIBIL score, and financial discipline. You might even receive a notice from the Income Tax Department.
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Proper Use of Credit Limit
If your total credit limit is ₹5 lakh, you should only spend 30% to 40% of it. Repeatedly spending up to the full limit can lower your CIBIL score, which can make it difficult to get loans or increase your credit limit in the future.
When Credit Card Use Can Be Harmful
First, never use a credit card to withdraw cash from an ATM. This will incur a cash advance charge of 2.5% to 3%, and interest will start accumulating daily. Buying expensive gadgets or other items solely with a credit card, when you can’t pay the bill, can trap you in a debt cycle. Planning travel solely relying on a credit card is also not advisable, as the interest will keep accumulating even if you make only the minimum payment.
Always be cautious when making online payments. If the website doesn’t seem secure or doesn’t have HTTPS, giving your card details there is risky. Adding new EMIs with a credit card when you already have personal loans, EMIs, or other liabilities can increase your risk. Do not rely on credit cards to buy land or property. Do not let anyone else use your credit card, nor use it to give loans to others; otherwise, you might come under the radar of the Income Tax Department.
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When Can You Receive an Income Tax Notice?
If a person’s credit card bill exceeds ₹10 lakh in a financial year, the bank or card company reports this information to the Income Tax Department. This is known as a Statement of Financial Transactions (SFT). If the limit is exceeded, the tax department may send a notice under Section 142(1), requesting details of the expenses and supporting documents. If further investigation is required, information can be obtained directly from the bank or card company under Section 133(6).