Income tax notice for credit card spends..

[maggitopramen]

folks, i think i am in trouble. I had a few questions and tried searching through the site and this thread but none really answered so please forgive if something is getting duplicated by me:

i thought i was on top of it but a few spends later i realized I have ended up spending more than 10lakhs on my Axis Bank Credit Cards. (Since axis owns citi cards now, I am guessing citibank card spends will get added to axis bank card spends and get totalled together for the 10lakh limit?).

Me and my wife are self-employed as partners in a partnership that runs a non-gst (since we have <40l turnover) registered trading business. Both of us take salaries out of it. My personal salary and only source of income is between 4-5 lakhs per annum for which ITR is filed.

In the 10+ lakh spends on axis credit cards, 90% spends were for my business. The business from its current account used to pay directly into the personal credit card every month all the dues for the spends that were made on behalf of the business. I have all the records for every transaction done on behalf of the business and the payment dates.

I have stopped using both my axis and citibank credit cards till end of this financial year. Unfortunately there are a few emi spends on the axis card which will keep showing up every month till march.

Now, Financial Year 2023-2024 has not yet ended but eventually this will definitely get reported in AIS. The few questions I had:

Q1) I don't know if I will get a notice, but if I do I just want to know how can I explain the discrepancy between my personal income and the card spend. One of the replies in this thread talked about business paying personal credit card should be declared as personal income? Didn't understand it exactly.

Q2) Has anyone got a notice here? If one receives it and now they would want to know everything, does it ask one to disclose all other bank cards held and payments done on them as well? Then my total spends across all banks will cross even 20 lakhs.

Q3) Is there any accounting practice I can implement immediately to provide a better explanation when the return is filed for this financial year?

Q4) Should i continue my business spends on other non-axis non-citi credit cards to continue earning the rewards/points, or stop altogether for this financial year or permanently?

Thank you to everyone who reads this post for your valuable time. I really appreciate it and even more grateful to those who will reply.

 

[Deleted member 19066]

Hello everyone .

It's Rule that Bank will report transactions above 10 lacs in a year by any person to income tax authorities..

i have seen many people rotating money by rent, bills payment or selling credit cards.. well infact, I am too a part of it....

Has anyone recieved notice from ITR anytime ? i believe rotating money, card sharing for reward points/cashback is not legal?

What should be the course of action or anyone has any experience out of it..

P.S :- In last Year ITR, my AIS shows 13 lacs credit card bills payment to axis.. My annual salaried income is 10 lacs... i ignored the AIS and filed ITR as it is in my form-16.. please guide me .. Unaware on any such legality/rules..

My cc spendings this year is approx 40-50 lacs😟

Sirji.... Don't do that...

Agar Income Tax ke hath lag gaye to halat kharab ho jayegi...

40-50 lakhs is not a small amount.

Stop rotation... Misuse...

 

[RAMESH BABU N]

folks, i think i am in trouble. I had a few questions and tried searching through the site and this thread but none really answered so please forgive if something is getting duplicated by me:

i thought i was on top of it but a few spends later i realized I have ended up spending more than 10lakhs on my Axis Bank Credit Cards. (Since axis owns citi cards now, I am guessing citibank card spends will get added to axis bank card spends and get totalled together for the 10lakh limit?).

Me and my wife are self-employed as partners in a partnership that runs a non-gst (since we have <40l turnover) registered trading business. Both of us take salaries out of it. My personal salary and only source of income is between 4-5 lakhs per annum for which ITR is filed.

In the 10+ lakh spends on axis credit cards, 90% spends were for my business. The business from its current account used to pay directly into the personal credit card every month all the dues for the spends that were made on behalf of the business. I have all the records for every transaction done on behalf of the business and the payment dates.

I have stopped using both my axis and citibank credit cards till end of this financial year. Unfortunately there are a few emi spends on the axis card which will keep showing up every month till march.

Now, Financial Year 2023-2024 has not yet ended but eventually this will definitely get reported in AIS. The few questions I had:

Q1) I don't know if I will get a notice, but if I do I just want to know how can I explain the discrepancy between my personal income and the card spend. One of the replies in this thread talked about business paying personal credit card should be declared as personal income? Didn't understand it exactly.

Q2) Has anyone got a notice here? If one receives it and now they would want to know everything, does it ask one to disclose all other bank cards held and payments done on them as well? Then my total spends across all banks will cross even 20 lakhs.

Q3) Is there any accounting practice I can implement immediately to provide a better explanation when the return is filed for this financial year?

Q4) Should i continue my business spends on other non-axis non-citi credit cards to continue earning the rewards/points, or stop altogether for this financial year or permanently?

Thank you to everyone who reads this post for your valuable time. I really appreciate it and even more grateful to those who will reply.

Avoid taking guidance from amateurs n freelancers - more so when you are already in trouble or about face it.

Spend time with a good auditor/tax consultant.

 

[ccdc]

folks, i think i am in trouble. I had a few questions and tried searching through the site and this thread but none really answered so please forgive if something is getting duplicated by me:

i thought i was on top of it but a few spends later i realized I have ended up spending more than 10lakhs on my Axis Bank Credit Cards. (Since axis owns citi cards now, I am guessing citibank card spends will get added to axis bank card spends and get totalled together for the 10lakh limit?).

Me and my wife are self-employed as partners in a partnership that runs a non-gst (since we have <40l turnover) registered trading business. Both of us take salaries out of it. My personal salary and only source of income is between 4-5 lakhs per annum for which ITR is filed.

In the 10+ lakh spends on axis credit cards, 90% spends were for my business. The business from its current account used to pay directly into the personal credit card every month all the dues for the spends that were made on behalf of the business. I have all the records for every transaction done on behalf of the business and the payment dates.

I have stopped using both my axis and citibank credit cards till end of this financial year. Unfortunately there are a few emi spends on the axis card which will keep showing up every month till march.

Now, Financial Year 2023-2024 has not yet ended but eventually this will definitely get reported in AIS. The few questions I had:

Q1) I don't know if I will get a notice, but if I do I just want to know how can I explain the discrepancy between my personal income and the card spend. One of the replies in this thread talked about business paying personal credit card should be declared as personal income? Didn't understand it exactly.

Q2) Has anyone got a notice here? If one receives it and now they would want to know everything, does it ask one to disclose all other bank cards held and payments done on them as well? Then my total spends across all banks will cross even 20 lakhs.

Q3) Is there any accounting practice I can implement immediately to provide a better explanation when the return is filed for this financial year?

Q4) Should i continue my business spends on other non-axis non-citi credit cards to continue earning the rewards/points, or stop altogether for this financial year or permanently?

Thank you to everyone who reads this post for your valuable time. I really appreciate it and even more grateful to those who will reply.

remember 1 basic funda...ITD is interested in tax evasion....wilful or non wilful.....they always see income declared in personal ITR and see all your CC spends (remember they can ask for your data from bank)...if you can justify the spends on your CC you're good....ITD doesn't care if business spends are done on personal CC.....they might give warning but that's only they can do...personal spends on CC is banks worry....ITD is only interested if you earn 5L and somehow you spend more than that....if you can justify the spends...whatever amount it may be...you're good..

 

[anirban.choudhury]

folks, i think i am in trouble. I had a few questions and tried searching through the site and this thread but none really answered so please forgive if something is getting duplicated by me:

i thought i was on top of it but a few spends later i realized I have ended up spending more than 10lakhs on my Axis Bank Credit Cards. (Since axis owns citi cards now, I am guessing citibank card spends will get added to axis bank card spends and get totalled together for the 10lakh limit?).

Me and my wife are self-employed as partners in a partnership that runs a non-gst (since we have <40l turnover) registered trading business. Both of us take salaries out of it. My personal salary and only source of income is between 4-5 lakhs per annum for which ITR is filed.

In the 10+ lakh spends on axis credit cards, 90% spends were for my business. The business from its current account used to pay directly into the personal credit card every month all the dues for the spends that were made on behalf of the business. I have all the records for every transaction done on behalf of the business and the payment dates.

I have stopped using both my axis and citibank credit cards till end of this financial year. Unfortunately there are a few emi spends on the axis card which will keep showing up every month till march.

Now, Financial Year 2023-2024 has not yet ended but eventually this will definitely get reported in AIS. The few questions I had:

Q1) I don't know if I will get a notice, but if I do I just want to know how can I explain the discrepancy between my personal income and the card spend. One of the replies in this thread talked about business paying personal credit card should be declared as personal income? Didn't understand it exactly.

Q2) Has anyone got a notice here? If one receives it and now they would want to know everything, does it ask one to disclose all other bank cards held and payments done on them as well? Then my total spends across all banks will cross even 20 lakhs.

Q3) Is there any accounting practice I can implement immediately to provide a better explanation when the return is filed for this financial year?

Q4) Should i continue my business spends on other non-axis non-citi credit cards to continue earning the rewards/points, or stop altogether for this financial year or permanently?

Thank you to everyone who reads this post for your valuable time. I really appreciate it and even more grateful to those who will reply.

Don't worry , just file your ITR.
You won't get any notice.
The notice from IT is mostly sent out to people who don't file ITR and have some transactions in their SFT's

 

[sidp]

folks, i think i am in trouble.

If you have done non-cash transactions only ( upi, card, cheque, pos, neft, rtgs etc) , and you are not evading tax, then it shouldn't be a big problem.

Let's look at the motivation of other parties I.e. The bank and ITD. First let's take the bank. Generally bank ( or online platforms) are OK with you using personal cc as long as you are not doing it at their expense. There are some "super genius resellers" who use fk axis cc to buy from fk and sell at discounted price in offline mode or olx. Their card gets blocked and they get reported to itd( like they should). This is cuz they are making money at the expense of flipkart and axis. But the same flipkart allows others to put gst no( a commercial purchase) and use personal cc at the same time. They dont care if govt gets less tax. They even allow business accounts with hdfc wholesale cards.
As long as banks are earning that sweet sweet mdr, they wouldn't want to end the relationship; even though business cards have higher mdr & we break the agreement by using personal card on business purchase( a bird in the hand is worth two in the bush).

On the other hand ITD wants you to pay all the tax that you owe. If you dont take advantage of exceptions and pay more than you should, they are OK with it. But issue is once they have marked you, they will try to get something out of you ; you know like once the traffic police stops you, they will find some issue. ( I saw a guy who had all the papers for his brand new bike fined for his dipper being focused 'too close' to the bike).
If you have paper trail of showing, for all the business transactions done on personal card, you have been reimbursed by your company, you should be clear. It could be taken as your business took a short term loan from you. Please remember that your business is separate entity. You can claim for limited liability as long as you treat the business as separate entity.

I infer that you paid the business expenses part of credit card bill directly from company account. If that's the case, you are in a very good position already. If you have done any cash transactions, then they would ask for self attested copies of their pan no with purpose and amount of transactions to make sure that this amount is not your income rather some business expenses. ( this is where most tax evaders gets stuck.)

When I say cash transactions I don't mean cash withdrawal using cc. Once your card is flagged, they also ask for bank statement. Idk if they aks for all accounts but definitely accounts in same bank. I know of a guy who was flagged for his hdfc cc. They requested his hdfc bank statement. But he was cleared cuz he had full paper trail to prove his business expenses. He gave a pro tip: once you do a business transaction using personal cc or account, transfer equal amount from business account to card holders account.its makes it easier to track and prove your point. Plus you earn some interest. ITD dont care if you trick the card issuer. Anyway either you make more profit or the bank, they would get the tax eitherway.

Caveat: 1. ITD can ask for clarification even after years. You better maintain proper written records, so that you can explain even after 5years.
2. Even with all your proofs, if they ask for clarification you should go directly to a CA or lawyer who specifically deals in this kind of stuff. Wording matters a lot. 2 words can mean very similar in English literature but very different in legal world. Most importantly a good ca or lawyer cost a lot. You may not hire them to argue your case, but you must consult them.


Disclaimer: I am not a CA or lawyer.

 

[RAMESH BABU N]

If you have done non-cash transactions only ( upi, card, cheque, pos, neft, rtgs etc) , and you are not evading tax, then it shouldn't be a big problem.

Let's look at the motivation of other parties I.e. The bank and ITD. First let's take the bank. Generally bank ( or online platforms) are OK with you using personal cc as long as you are not doing it at their expense. There are some "super genius resellers" who use fk axis cc to buy from fk and sell at discounted price in offline mode or olx. Their card gets blocked and they get reported to itd( like they should). This is cuz they are making money at the expense of flipkart and axis. But the same flipkart allows others to put gst no( a commercial purchase) and use personal cc at the same time. They dont care if govt gets less tax. They even allow business accounts with hdfc wholesale cards.
As long as banks are earning that sweet sweet mdr, they wouldn't want to end the relationship; even though business cards have higher mdr & we break the agreement by using personal card on business purchase( a bird in the hand is worth two in the bush).

On the other hand ITD wants you to pay all the tax that you owe. If you dont take advantage of exceptions and pay more than you should, they are OK with it. But issue is once they have marked you, they will try to get something out of you ; you know like once the traffic police stops you, they will find some issue. ( I saw a guy who had all the papers for his brand new bike fined for his dipper being focused 'too close' to the bike).
If you have paper trail of showing, for all the business transactions done on personal card, you have been reimbursed by your company, you should be clear. It could be taken as your business took a short term loan from you. Please remember that your business is separate entity. You can claim for limited liability as long as you treat the business as separate entity.

I infer that you paid the business expenses part of credit card bill directly from company account. If that's the case, you are in a very good position already. If you have done any cash transactions, then they would ask for self attested copies of their pan no with purpose and amount of transactions to make sure that this amount is not your income rather some business expenses. ( this is where most tax evaders gets stuck.)

When I say cash transactions I don't mean cash withdrawal using cc. Once your card is flagged, they also ask for bank statement. Idk if they aks for all accounts but definitely accounts in same bank. I know of a guy who was flagged for his hdfc cc. They requested his hdfc bank statement. But he was cleared cuz he had full paper trail to prove his business expenses. He gave a pro tip: once you do a business transaction using personal cc or account, transfer equal amount from business account to card holders account.its makes it easier to track and prove your point. Plus you earn some interest. ITD dont care if you trick the card issuer. Anyway either you make more profit or the bank, they would get the tax eitherway.

Caveat: 1. ITD can ask for clarification even after years. You better maintain proper written records, so that you can explain even after 5years.
2. Even with all your proofs, if they ask for clarification you should go directly to a CA or lawyer who specifically deals in this kind of stuff. Wording matters a lot. 2 words can mean very similar in English literature but very different in legal world. Most importantly a good ca or lawyer cost a lot. You may not hire them to argue your case, but you must consult them.


Disclaimer: I am not a CA or lawyer.

Upto 7 following Financial Years, ITD can get back to you on anything. So, do not delete/destroy any important/tax-related info/data/dox.

 

[sidp]

Upto 7 following Financial Years, ITD can get back to you on anything. So, do not delete/destroy any important/tax-related info/data/dox.

Yes sir. I know. That's why I advised to maintain proper written record, so he can explain later. Mental notes wouldn't be dependable in long term. And if there are cash transactions, he must make them agree to disclose pan details and purpose and amount of transactions asap. Cuz years down the line, no one will.

 

[_ayush]

I have filed ITR for more than 20L last year and will do this year as well. Also have a loan of 11L. Last FY CC spends were around 5L. This year total CC spends are around 19L.
I haven't crossed 10L on any single card in this FY. Max is 9.1L on DCB.
I have to make a payment of 1.3L today. My only options are DCB or Sapphiro.
Wondering if I should use DCB or not?
Another option is DCB add on. Wondering if it will make any difference. The add on user also files ITR greater than total spends on CC.

 

[Zacobite]

I have filed ITR for more than 20L last year and will do this year as well. Also have a loan of 11L. Last FY CC spends were around 5L. This year total CC spends are around 19L.
I haven't crossed 10L on any single card in this FY. Max is 9.1L on DCB.
I have to make a payment of 1.3L today. My only options are DCB or Sapphiro.
Wondering if I should use DCB or not?
Another option is DCB add on. Wondering if it will make any difference. The add on user also files ITR greater than total spends on CC.

expenses of 19 L on 20 L ITR may raise Qs. If you can justify source of funds then there is no issue at all.. Large payments are also reported.. Keep accounts of sources and expenses.. If it is business related then view can be different.. Genuine income and genuine expenses can always be explained.. nothing to worry..

 

[_ayush]

expenses of 19 L on 20 L ITR may raise Qs. If you can justify source of funds then there is no issue at all.. Large payments are also reported.. Keep accounts of sources and expenses.. If it is business related then view can be different.. Genuine income and genuine expenses can always be explained.. nothing to worry..

So i am sort of safe since no card has reached 10L yet.
What about add on card spends. Will they get counted towards my ITR only?

 

[Zacobite]

So i am sort of safe since no card has reached 10L yet.
What about add on card spends. Will they get counted towards my ITR only?

everything will be in some form.. Reasonable spends / Clear sources of income are key.. anything suspicious will be flagged!

 

[Zacobite]

So i am sort of safe since no card has reached 10L yet.
What about add on card spends. Will they get counted towards my ITR only?

don't need to answer .. but you shd see yourself how you spent 19 L with 20 L income? Either you had some additional funds from somewhere ( loans / income) or you had huge savings or you are rotating.. in all cases.. clear accounts / book keeping will help.. Can you explain.. if yes then be cool.. if not.. then stop doing it

 

[_ayush]

don't need to answer .. but you shd see yourself how you spent 19 L with 20 L income? Either you had some additional funds from somewhere ( loans / income) or you had huge savings or you are rotating.. in all cases.. clear accounts / book keeping will help.. Can you explain.. if yes then be cool.. if not.. then stop doing it

I am not rotating 🤣
Around half of it is my spends.
The other half is due to friends using it for discount on Flipkart/Amazon and some are due to an international trip with friends for which my card got used for tickets, hotels, etc. Some is because I live with friends currently and again my card gets used for daily expenses.
Looks like I should stop allowing others to use my card. 😂
If I do end up getting a notice, I will get a CA and I think most of it can be justified as big purchases have billing address attached with other's name.

 

[Zacobite]

I am not rotating 🤣
Around half of it is my spends.
The other half is due to friends using it for discount on Flipkart/Amazon and some are due to an international trip with friends for which my card got used for tickets, hotels, etc. Some is because I live with friends currently and again my card gets used for daily expenses.
Looks like I should stop allowing others to use my card. 😂
If I do end up getting a notice, I will get a CA and I think most of it can be justified as big purchases have billing address attached with other's name.

super.. so nothing to worry.. just ensure they return the money online.. records will match..keep an account...hopefully you have got your money back

 

[sidp]

I am not rotating 🤣
Around half of it is my spends.
The other half is due to friends using it for discount on Flipkart/Amazon.

Legally you won't have a problem. Also 19L expenses on 20L isn't an issue. You can say I saved up for years for a foreign trip. But yeah, if you spend for someone else, always accept through neft/upi. If you get flagged, itd will ask your friends pan also.

And just because it's under 10L doesn't mean you won't get notice. Above 10L credit payment or cash deposit, they are Legally required to report. But they can report for 5L also, if they find it suspicious.

 

[arunkd386]

Can i make additional payment in last month before statement generation if total spends are just above 10L?

 

[sidp]

Can i make additional payment in last month before statement generation if total spends are just above 10L?

i think total payment of 12 statement is considered. Have to check specific wording. But why do you want to play with fire?

If the money you spent is white and you can prove source of money spent, there wont be any problem. If your spend is 12L but reported income 20. There is no problem. Even if it is other way around but all money spent is white, you can say I saved for so many years.

For rotation, you shouldn't do anything more than 7-8L. See once you get notice, they'll ask you for explanation. Ask you bank statement, credit card statements etc. If you can't explain any source of income, you'll be heavily taxed(around 60%). Plus if card issuer catches you are doing rotation/business transactions, they will block your card. May even blacklist you from getting any other card/loan.

 

[Daunt]

10L limit is for one card company or combined?

 

[NShah]

10L limit is for one card company or combined?

10L per bank