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Nowadays, almost every employed person is using a credit card. Be it the last day of the month or any big expense, a credit card works. Everything is fine till here, but if you use a credit card to run the work of friends, then you can get into trouble and come under the radar of the Income Tax (IT) department. Let's know why this is so.

Actually, it often happens that people help each other in friendship. For example, they book flight tickets to help a friend. They help with online or offline shopping or pay any bill when needed. This habit can put you in trouble. This is because the friend who takes help will return the money to you through UPI or bank transfer. But here, there is a big thing which people ignore, that is the Income Tax Department.

The Income Tax Department will consider it as 'earnings'
If you are repeatedly spending from your credit card and friends keep returning the money to you, then the tax department can also see it as 'earnings'. Especially when the amount is big or such transactions happen repeatedly. In such a situation, the income tax department can ask. Why did you get this money? Is this your income? That is, you cannot get into tax hassles in the name of maintaining friendship.

Understand it like this.
For example, suppose you have helped your friend buy a smartphone worth Rs 50,000 from your own credit card. The phone bill has been paid from your card. After this, the friend transferred ₹ 50,000 to you through UPI a few days later. This is fine. But if you use a credit card for a large amount like this and take money online, then this can affect your income tax. The income tax department can consider the money received online as your income.

What is the tax rule?
If your credit card expenses exceed ₹ 10 lakh or more in a financial year, then the bank has to give its information directly to the income tax department. Similarly, if you pay a credit card bill of more than ₹ 1 lakh in cash, it can also be a cause of suspicion. If you take cash or transfer money without a record, you may be charged a penalty. Therefore, do every transaction through banking channels, such as UPI, NEFT, or IMPS.

How to avoid tax hassles?

Chartered Accountant Neeraj Sharma explains that if you use your credit card to help friends, it is very important to take some precautions. First of all, try to keep a banking record of every transaction. Always take money through UPI, NEFT, or bank transfer; avoid taking cash, as the tax department may suspect cash transactions. Apart from this, avoid spending on friends and taking money back from them repeatedly. If this happens repeatedly, the department may consider it your business activity. If the amount is large, it would be better to make a written consent or a small agreement between you and your friend. This will prove that this is just help, not any earning.

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