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Tata Capital > Blog > Generic > Which Credit Card Fees Are Tax-Deductible?


Which Credit Card Fees Are Tax-Deductible?

Which Credit Card Fees Are Tax-Deductible?

A credit card is an essential financial tool for making instant, hassle-free payments. It also offers a convenient credit facility for any emergency use. A credit card makes life easy. There is no need to carry cash anywhere. It is convenient, with no need for a smartphone or internet connection. The credit facility also provides a financial cushion for any significant expense. As long as card payment is made on time, the credit line is money given free, without any interest charged! While many digital payment tools are available today, a credit card scores above them.

Credit cards are akin to short-term personal loans available without paperwork. Credit card usage also earns reward points and monetary benefits. Card payments can be made as per the borrower’s fund requirements. There is an EMI facility also offered by many cards issuing companies to pay the card dues in instalments.

A credit card is an excellent tool for business owners to fund their short-term fund requirements. While personal and business loans are available, a credit card limit is an add-on facility. A new business or startup may not have a credit score or considerable profits in the initial years. A credit card is a quick way to meet immediate day-to-day business needs. 

Apart from all the above benefits, there is a lesser-known benefit that a credit card offers. It is nothing but tax deductions. Every taxpayer must know the tax benefits they can avail of. Tax deductible expenses reduce a taxpayer’s tax liability and add money to the pocket. Credit card fees are a tax-deductible expense.

Which credit card fees are tax deductible?

There are different types of fees levied on credit cards:

Annual Fee

An annual fee is a recurring fee for card issuance and usage. Some card issuers waive the yearly fee for specific customer segments.

Interest Charges

Credit cards offer free credit for a certain number of days. If payment is not made within the free credit period, interest must be paid on the credit amount used. The interest rate varies from bank to bank.

Balance Transfer Fee

Card companies allow users to transfer any balance on their previous credit card to a new one. This balance transfer attracts a processing fee.

Late Payment Charges

Every time a payment is made beyond the due date, a late payment fee is charged on the card.

Cash Advance Charges

Any Cash withdrawal on a credit card attracts a fee.

Overseas Transaction Charges

Some card issuers charge a fee for any foreign currency transaction on credit cards.

Who can claim tax deductions on credit card fees?

Credit card fees on cards for personal use are not tax deductible. Only businesses can claim tax deductions for credit card charges. The user must substantiate that the credit card was used for business purposes. The expense needs to be validated with proper proof. Any fee for business transactions is then deducted from business tax liability. The annual fee for such a card is also tax deductible.

Few points to remember for claiming tax-deductible card benefits:

It is vital to keep personal expenses and business expenses separate. A personal expense paid on a business credit card cannot be claimed for deduction. Therefore, having different credit cards for personal and business use is advisable. It makes accounting and segregation of tax-deductible expenses easier. It is also advisable to make payments from a business account to keep transactions strictly for business purposes.

If a business owner uses a business credit card for personal use, the expense cannot be claimed for tax benefit. Even such a card's annual fee tax deduction must be validated. Hence, clear segregation of cards, transactions, and payments is critical.

A user should not claim deductions for a card used largely for personal and occasional business expenses.

A business card expense deduction should not be claimed in a personal tax return.

An expense on a business card is not directly related to business. All tax-deductible claims need to be validated.

Some businesses use credit card machines to accept payments from their customers. Merchants pay a fee to the card networks, e.g. Visa or Mastercard. They also pay a fee per transaction to the card company for payment via their credit card. All these charges and processing fees can be filed as business expenses and claimed as tax deductible in tax returns.

Wrapping up

To conclude, credit cards are convenient and safe for making payments. Business owners, sole proprietors, partnership firms, and companies can claim credit card fees as business-related expenses. Credit cards provide not only instant free credit but also tax deductible benefits. It makes credit cards an attractive payment and credit option. Keeping business and personal expenses is easy through separate credit cards. Banks and Financial Services companies offer different types of credit cards. Tata Capital offers a wide range of credit cards to meet discerning needs. Whether it is quick money for personal or business expenses, Tata Capital has a bank of card offerings.

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