- Date : 01/05/2023
- Read: 3 mins
Credit card users in India must avoid making fake rent payments using credit cards, which can lead to tax benefits fraud and non-compliance with TDS regulations.
The rise of credit cards in India has been exponential, with around 77 million active credit cards in circulation. With growing lifestyle aspirations, cards catering to specific needs, and personalised offers and rewards, people constantly seek ways to maximise their credit card usage. However, be aware of the potential pitfalls associated with credit card usage, such as manipulating the reward system through fake rent payments using credit cards.
Also Read: Best credit card management apps of 2022
Manipulation of the card reward system
Payment platforms now allow credit card payment for rent, with a nominal fee and an interest-free credit period of around 45 days. While this may seem like an easy way to earn air miles, reward points, or cashback, it is important to understand the consequences of such actions. Making fake rent payments using credit cards is not recommended as it can lead to tax benefits fraud and non-compliance with Tax Deducted at Source (TDS) regulations.
Why make fake rent payments using credit cards?
There are several reasons why people make fake rent payments using their credit cards.
-
Claim tax deductions
One of the primary reasons is to claim tax deductions, either as House Rent Allowance (HRA) or under Section 80 (GG) of the Income Tax Act. However, this is illegal, and fake rent receipts can result in penalties under sections 234A, 234B, and 234C of the IT Act. The consequences of fake rent payments with credit cards can be dire, and individuals should be aware of the potential risks associated with this practice.
-
Meet card spending targets.
Another reason people may resort to making fake rent payments using their credit cards is to meet spending targets. However, this is not a good practice as it can lead to debt accumulation. Converting credit card credit limits to bank account balances for business purposes is also not a recommended practice.
-
Get more rewards
The payment platform cannot determine whether the rent paid is genuine but will continue to dole out the rewards - cashback, air miles, or points, to the payer. This can incentivise individuals to abuse the system and gather these rewards on payments that are not genuine.
Also Read: Corporate credit cards - here are the dos and don'ts
Be wary of TDS fraud
On the payment receiver's side, the landlord must report the amount received in their tax return, and if it exceeds Rs. 1 lakh in a financial year, the PAN card details must be entered.
If the landlord refuses to share their PAN details, you can email the Income Tax Department requesting your landlord's PAN. Additionally, TDS on rent payments for individuals requires a deduction of 5% of the rent amount if it exceeds Rs. 50,000 per month.
Failure to deduct TDS can result in a monthly penalty interest of 1%. Making fake rent payments using your credit card can lead to tax benefits fraud and non-compliance with TDS regulations, resulting in financial and legal repercussions.
The Takeaway
Credit card usage has its benefits, but it is crucial to be aware of the consequences of manipulating the reward system through fake rent payments using credit cards. Tax benefits fraud and non-compliance with TDS regulations can result in financial and legal consequences that should be avoided at all costs.
It is always better to opt for legitimate payment methods and avoid any risks associated with rent payments using credit cards. Being responsible with credit card usage can ensure a stress-free financial life.
The rise of credit cards in India has been exponential, with around 77 million active credit cards in circulation. With growing lifestyle aspirations, cards catering to specific needs, and personalised offers and rewards, people constantly seek ways to maximise their credit card usage. However, be aware of the potential pitfalls associated with credit card usage, such as manipulating the reward system through fake rent payments using credit cards.
Also Read: Best credit card management apps of 2022
Manipulation of the card reward system
Payment platforms now allow credit card payment for rent, with a nominal fee and an interest-free credit period of around 45 days. While this may seem like an easy way to earn air miles, reward points, or cashback, it is important to understand the consequences of such actions. Making fake rent payments using credit cards is not recommended as it can lead to tax benefits fraud and non-compliance with Tax Deducted at Source (TDS) regulations.
Why make fake rent payments using credit cards?
There are several reasons why people make fake rent payments using their credit cards.
-
Claim tax deductions
One of the primary reasons is to claim tax deductions, either as House Rent Allowance (HRA) or under Section 80 (GG) of the Income Tax Act. However, this is illegal, and fake rent receipts can result in penalties under sections 234A, 234B, and 234C of the IT Act. The consequences of fake rent payments with credit cards can be dire, and individuals should be aware of the potential risks associated with this practice.
-
Meet card spending targets.
Another reason people may resort to making fake rent payments using their credit cards is to meet spending targets. However, this is not a good practice as it can lead to debt accumulation. Converting credit card credit limits to bank account balances for business purposes is also not a recommended practice.
-
Get more rewards
The payment platform cannot determine whether the rent paid is genuine but will continue to dole out the rewards - cashback, air miles, or points, to the payer. This can incentivise individuals to abuse the system and gather these rewards on payments that are not genuine.
Also Read: Corporate credit cards - here are the dos and don'ts
Be wary of TDS fraud
On the payment receiver's side, the landlord must report the amount received in their tax return, and if it exceeds Rs. 1 lakh in a financial year, the PAN card details must be entered.
If the landlord refuses to share their PAN details, you can email the Income Tax Department requesting your landlord's PAN. Additionally, TDS on rent payments for individuals requires a deduction of 5% of the rent amount if it exceeds Rs. 50,000 per month.
Failure to deduct TDS can result in a monthly penalty interest of 1%. Making fake rent payments using your credit card can lead to tax benefits fraud and non-compliance with TDS regulations, resulting in financial and legal repercussions.
The Takeaway
Credit card usage has its benefits, but it is crucial to be aware of the consequences of manipulating the reward system through fake rent payments using credit cards. Tax benefits fraud and non-compliance with TDS regulations can result in financial and legal consequences that should be avoided at all costs.
It is always better to opt for legitimate payment methods and avoid any risks associated with rent payments using credit cards. Being responsible with credit card usage can ensure a stress-free financial life.
