By Sandeep Jhunjhunwala
A current pilot survey performed by Reserve Bank of India on retail payment habits of men and women in main cities revealed that debit and credit cards are most preferred modes for digital payments, with comfort cited as the paramount purpose. As per published information, .19 billion credit card transactions have been reported at the point of sale in the course of March 2021, with an aggregate transaction worth of Rs 72,500 crore.
While comfort is one side of the coin, it would be critical that credit card customers understand the ropes on the tax side as nicely.
Discounts and money back
Attractions such as discounts, money backs, travel miles, sign up bonuses and reward points presented by merchant dealers or banks, make credit cards a profitable medium for producing digital payments. Little would the credit card holder know that monetary worth of these freebies could come inside their tax bracket. Factual elements such as nature of purchases made (no matter if for individual or company factors), quantum of discounts, and so forth., also need to have to be worked out prior to calling the shots on the taxability front.
Whether such rewards would characterise as post acquire rebate/ discount or qualify as present tax below Section 56(2)(x) or company gains below Section 28(iv) of the Income Tax Act is the query. Claim of company expense, net of discounts or not, is a different facet.
Regulators have introduced provisions in tax laws for reporting of ‘specified financial transactions’. Banking and credit card institutions are essential to report payments made by a individual of amounts aggregating to Rs 1 lakh or more in money or Rs 10 lakh or more by any other mode, in a monetary year, against credit card bills issued to that individual. This gets disclosed in the Annual Information Statement in Form 26AS appearing against the PAN of the credit card holder on his registered revenue-tax e-filing account.
Income and spending
Access to data on each revenue and spends offers the regulators an in-road into scrutinising transactions and detect revenue-commit incongruity. Credit card transactions viewed in the context of employer-employee liaison throws up challenges for employers. Usually, staff use individual credit cards for producing payments against official costs such as travel, instruction, subscriptions, and so forth. Employers come across themselves in a repair though dealing with withholding tax elements about such payments made straight by staff utilizing credit cards, especially to foreign vendors.
‘To do’ or ‘not to do’ is the query. ‘To do’ would imply bearing tax fees due to inherent sensible impossibility to ‘deduct’ tax prior to producing remittance. ‘Not to do’ would imply interest and penal consequences for TDS defaults and consequent expense disallowance.
A related conundrum is faced by businesses below GST for import of services by staff, as GST paid on such transactions subsequently by employer entails working capital. On the other hand, non-compliance could imply litigation. Availment of input tax credit on transactions utilizing credit cards by staff and without having possessing an invoice without having GST quantity of employer corporation, is a bring about for tax leakage.
Digitisation of monetary transactions might undoubtedly be the need to have of the hour to accomplish a cashless economy. This objective, when seen in context of impeding tax considerations, tends to make it crucial to take the edge off some of these tax uncertainties.
The writer is companion, Nangia Andersen LLP. Inputs from Amita Jivrajani & Tarun Daga