Income tax deadline nears: Credit card payments to settle tax dues offer flexibility, but there's a catch

As the deadline for filing income tax returns (ITR) draws closer, many taxpayers are rushing to complete payments before penalties kick in. While most individuals are familiar with traditional options like net banking, UPI, or debit cards, fewer are aware that they can also pay their income tax using a credit card. For those facing a short-term cash crunch or keen to optimise credit card benefits, this facility can provide temporary relief—though not without hidden costs.

The Income Tax Department allows tax payments through multiple digital channels, including debit and credit cards. Authorised gateways such as BillDesk, Paytm, and NSDL facilitate the process directly on the government’s e-filing portal. According to tax advisory platform TaxBuddy, several banks and card issuers support this method, but acceptance is not universal, and not all cards offer rewards or benefits on such transactions.

Unlike UPI or net banking, where charges are negligible or nil, credit card transactions often carry a convenience fee ranging between 0.3% and 1% of the tax amount, plus GST. For small payments, the additional charge may not matter much, but for large liabilities running into lakhs, these fees can add up significantly.

Benefits of using credit cards

Despite the costs, credit card payments offer some clear advantages. The most significant is the credit window, up to 45 days of interest-free time depending on the billing cycle. This can be particularly useful for taxpayers who are short on funds but want to avoid late fees and penalties for missing the ITR deadline.

Some credit cards also provide cashback, milestone rewards, or loyalty points, which can help partially offset the convenience fee. In certain cases, hitting a spending milestone on the card could unlock benefits like bonus points, vouchers, or annual fee waivers. For disciplined card users, this creates an additional incentive to route their tax payments through a credit card.

The hidden costs and risks

However, experts caution that the risks may outweigh the rewards for many taxpayers. If the credit card bill is not cleared in full by the due date, hefty finance charges—often in the range of 36–42% annually—apply. Carrying forward even a part of the tax payment as revolving credit can result in significant interest outgo, making this one of the costliest ways to pay taxes.

High-value tax payments also utilise a large portion of the credit limit, potentially affecting the individual’s credit utilisation ratio. A high ratio can negatively impact credit scores, which in turn affects eligibility for future loans and credit products.

When does it make sense?

Financial planners suggest using a credit card for tax payments only in specific scenarios. It is suitable if the taxpayer is confident about paying the card dues in full, rewards or milestone benefits offset the convenience fee, and the transaction does not significantly increase credit utilisation. For most individuals, UPI, net banking, or debit cards remain the cheapest and simplest methods.

As the deadline looms, experts emphasise that the priority should be to complete tax payments on time, irrespective of the method. Credit cards can provide short-term flexibility, but only if used responsibly. Otherwise, what starts as a convenience could quickly turn into an expensive liability.