Income Tax Return: Step-by-step guide to optimise returns on credit card expenses while filing ITR

Filing your Income Tax Return(ITR) can seem daunting, particularly when considering the different sources of income and deductions. Credit card expenses influence your tax calculations, which is often neglected. Understanding how to include credit card expenditures in your ITR can significantly impact your deductions and rebates.

Here’s a complete, step-by-step guide on using credit card expenses to optimise your FY 2023-24 tax filing.

Gather your credit card statements

The first step is to collect all your credit card statements for the fiscal year. These statements are important because they contain detailed transaction records, from large purchases to small expenses. Most banks and credit card issuers provide these statements every month, which can be accessed through physical copies or online.

Categorise your expenses

Credit card statements often categorise expenses, but it is important to check and appropriately identify them. The common categories include:

• Travel and accommodation, which include expenses such as airfares, hotel bookings, etc.
• Shopping and dining, covering purchases at retail stores, restaurants, etc.
• Utility and subscription expenses include bills for various subscription-based services.
• Health and education are subject to tax returns, including medical expenses, tuition fees, etc.

Proper categorisation ensures that eligible costs are identified to maximise deductions.

Identify eligible deductions

Certain expenses incurred via credit card can be claimed as deductions under various provisions of the Income Tax Act:

• Medical expenses: Section 80D includes premiums paid for health insurance policies.
• Education expenses: Section 80C covers tuition expenses for children's education.
• Travel expenses for business: if you run a business, you can claim expenses for business travel.

Ensure that you have adequate documents for these expenses, such as receipts or invoices.

Avoid scrutiny

The Income Tax Department demands the reporting of high-value transactions. If you spend more than ₹2 lakh annually on your credit card, report these details correctly in your ITR. This is essential to prevent any inconsistencies that might lead to scrutiny.

Use the correct ITR form

When filing your ITR, use the appropriate form depending on your sources of income and category. Here are the forms you must be aware of:

• ITR-1 is for individuals with income from salary, one house property, and other sources.
• ITR-2 is for individuals and HUFs not having income from business or profession.
• ITR-3 is for individuals and HUFs having income from proprietary business or profession. While filing the form, accurately disclose your credit card expenses in the relevant sections.

Seek professional help

If you have significant credit card transactions or complex deductions, consulting a tax professional or chartered accountant can ensure precise reporting and maximise your deductions.