ITR Filing FY25: Can Credit Card Rewards Beat the Zero-Fee UPI Advantage?

As the ITR filing deadline for FY25 nears, taxpayers are looking for convenient ways to pay their income tax dues. While UPI and net banking are commonly used, credit cards are emerging as a popular option. But is it really worth it? 

Let’s break it down.

ITR Filing FY25: Why is UPI Preferred Over Other Tax Payment Options?

UPI and net banking remain the most cost-effective methods to pay income tax. These modes do not attract any additional charges and are widely accepted across all banks. Besides, they offer immediate confirmation of payment and are relatively simple to use.

Because there's no fee or interest involved, they’re ideal for anyone who wants a no-hassle, no-cost way to pay their taxes (especially if you have the funds readily available).

ITR Filing FY25: What Are the Pros and Cons of Paying Tax With Credit Cards?

Using a credit card to pay income tax can seem attractive for several reasons. Firstly, it offers up to 45 days of interest-free credit, which can be helpful if you're short on funds. Secondly, they offer reward points, cashback, or milestone benefits on high-value transactions. This can help you qualify for annual fee waivers, especially on cards that require minimum annual spending to retain benefits.

However, these perks come with certain costs and limitations:

• Credit card payments attract a convenience fee of around 0.3% to 1% of the tax amount, plus GST.
• Some card issuers might exclude tax payments from earning points.
• If you don’t repay your credit card dues in full, you could be charged over 36% p.a interest.
• Large payments can reduce available credit and impact your credit score if utilisation spikes.

Cost of Paying ₹1,00,000 Tax Via Credit Card Vs UPI

Say your tax due is ₹1,00,000.

• With UPI, you pay ₹1,00,000, with no extra charges.
• With a credit card charging 1% fee + GST, you pay ~₹1,018 extra.

Unless your card gives rewards worth more than ₹1,000 (or milestone bonuses), UPI wins on cost.

Read more: ITR Filing FY25: Should You Report Sovereign Gold Bond Redemption Proceeds in ITR?

Conclusion

While credit cards offer flexibility and potential rewards, UPI and net banking win when it comes to simplicity, zero fees, and peace of mind. Unless you’re a disciplined spender aiming for specific card benefits, UPI remains the smarter choice for most taxpayers in FY25.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.