Income Tax Department Cracks Down on Third-Party Credit Card Payments: Notices Issued Across India
Tax authorities target misuse of cards for reward points and cashback; spending treated as unaccounted income
AIS and SFT data help detect suspicious transactions; taxpayers urged to disclose all payments properly
By Our Legal Reporter
New Delhi: December 04, 2025:
The Income Tax Department of India has intensified its surveillance on credit card transactions, issuing notices to individuals who use their cards to pay for expenses incurred by others. This practice, often done to accumulate reward points or cashback, is now firmly under the tax scanner. Officials say that when such payments exceed declared income, they are treated as unexplained expenditure or income, leading to tax demands and penalties.
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This crackdown reflects the government’s broader push to curb tax evasion and ensure transparency in financial transactions.
What Triggered the Crackdown
- Many taxpayers have been using their credit cards to pay for rent, travel, shopping, or even utility bills of friends, relatives, or clients.
- The motive is often to farm reward points or cashback, a practice known as “manufactured spending.”
- However, when card bills show expenses far beyond declared income, the tax department suspects unaccounted money circulation.
- Using Annual Information Statement (AIS) and Statement of Financial Transactions (SFT) data, authorities can now track these patterns with precision.
How the Tax Department Views It
Officials clarified that:
- Payments made on behalf of others, if not reimbursed or declared, are treated as income or unexplained expenditure.
- Large transactions inconsistent with declared income trigger notices under multiple sections of the Income Tax Act.
- Even if the motive was only to earn reward points, the department considers such spending as financial misreporting.
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Examples of Misuse
- Rent gaming: Using credit cards to pay rent for multiple people to earn cashback.
- Card lending: Allowing others to use one’s card for big-ticket purchases.
- Manufactured spending: Creating artificial transactions to maximize rewards.
These practices, once seen as harmless hacks, are now being treated as potential tax evasion.
Legal Provisions Involved
The crackdown involves notices under:
- Section 69C (Unexplained Expenditure): If expenses are not matched with declared income.
- Section 68 (Unexplained Cash Credits): If payments are treated as income without proper disclosure.
- Section 133C: For seeking information from taxpayers about suspicious transactions.
Implications for Taxpayers
- Risk of penalties: Non-disclosure can lead to tax demands, interest, and penalties.
- Scrutiny of lifestyle: Spending patterns inconsistent with income declarations will attract attention.
- Reward points not free: Farming points through third-party payments may cost more in penalties than the rewards earned.
Expert Opinions
Tax experts warn that taxpayers must be cautious. “The department now has full visibility of credit card transactions through AIS and SFT. Using cards for others without proper disclosure can be treated as tax evasion,” said a senior chartered accountant.
Another expert added, “Reward points are not worth the risk. Transparency in financial dealings is the only safe path.”
Broader Context
Globally, tax authorities monitor credit card misuse:
- US IRS: Tracks “manufactured spending” schemes linked to reward points.
- UK HMRC: Monitors suspicious card transactions as part of anti-money laundering efforts.
- Singapore IRAS: Requires disclosure of third-party payments to prevent tax evasion.
India’s crackdown aligns with these international practices.
Practical Guidance for Taxpayers
To avoid notices and penalties, taxpayers should:
- Disclose all payments properly in income tax returns.
- Avoid using cards for others unless reimbursed and documented.
- Match spending with declared income to prevent suspicion.
- Keep records of reimbursements and agreements.
- Consult professionals if notices are received.
Conclusion
The Income Tax Department’s crackdown on third-party credit card payments marks a significant step in curbing misuse of financial systems. By treating such spending as unaccounted income, authorities are sending a clear message: transparency and compliance are non-negotiable.
For taxpayers, the lesson is simple: reward points are not worth the risk of tax penalties. Proper disclosure and responsible financial practices are essential to avoid falling under the tax department’s radar.
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