Credit cards are essential financial tools for making instant, hassle-free payments. We also offer a convenient emergency credit feature. Credit cards make life easier. For big purchases, you don't need to carry a lot of cash, just a card is enough. It's convenient and doesn't require a smartphone or internet. Lines of credit also provide a financial cushion for large expenses. The line of credit is interest-free and free as long as the card payment is made on time. There are many digital payment tools available today, but credit cards are at the top of the list.

A credit card is like a short-term personal loan with no paperwork. You can also earn points and financial rewards by using your credit card. Card payments can be made according to the borrower's funding requirements. There is also an EMI option offered by many card issuers to pay for the card in instalments.

Credit cards are a great tool for business owners to fund short-term capital needs. Personal and business loans are available, but credit card limits are an added feature. New companies and start-ups may not have a good credit score or big profits in their first few years. A credit card is a quick way to meet your daily business needs. Apart from all the above advantages, there is one lesser known credit card advantage. It's nothing more than a tax deduction. All taxpayers need to know what tax benefits they can claim. Tax deductible expenses reduce taxpayers' tax liability and add money to their pockets. Credit card fees are tax deductible expenses.

Types of Credit Cards:

The growing popularity of credit cards has disrupted the lending and lending sector. Many new cards come with many new features and benefits. These features and benefits go a long way in classifying cards into different types. Individuals choose cards based on these categories. There are basic cards preferred by beginners and airline mileage cards that offer free flights. The following are different types of credit cards available:

Basic Credit Cards: This type of credit card, one will be given a small credit limit based on their total income and they can make purchases within the given limit. There are no additional benefits given on transacting with the card.

Secured Credit Cards: These type of credit cards is offered to individuals with history of default. Such individuals, who have a poor credit history can get hold of a secured credit card by making a deposit equal to the credit limit of the card. This deposit acts as a security to issue the credit card for banks. If they make payments on time consecutively for a few months, the bank may return the security deposit.

No Annual Fee Credit Cards: A no annual fee credit card is the one that does not levy any annual fee for the usage of the credit card. These are mainly used by individuals at the entry-level of credit card usage or those who make limited use of the card would prefer a no annual fee credit card.

Low-Interest Credit Cards: Credit cards that offer a lower interest rate in comparison to the other cards from a similar category is known as a low-interest credit card. However, this category is different from the balance transfer cards as the interest rate will not be as low as 0% and the rates are not only valid for a specified time as in the case of balance transfer cards.

Balance Transfer Credit Cards: Though most credit cards offer the facility to transfer balance, a balance transfer credit card comes with a low-interest rate for a specified period of time. If one’s current card has a high-interest rate, they may transfer the outstanding balance on their current card to a balance transfer card with a low rate. Some cards offer an opening rate as low as 0%.

Rewards Credit Cards: A rewards credit card is the one that offers some kind of rewards for every rupee you spend with the card. Every bank defines the number of reward points you get for a specified type of transaction, such as grocery shopping and online bill payment, you make with each rewards card it offers.

Cashback Credit Cards: Cashback credit cards offer a certain percentage of the purchase amount as cashback whenever you make a transaction with the card. The bank may also mention criteria such as cashback is applicable only for petrol transactions.

Travel Credit Cards: Frequent travellers benefit from a travel credit card as the card offers benefits such as travel insurance, global acceptance, favourable currency conversion rates, and more.

Shopping Credit Cards: Credit cards that come with deals and offers when the card is used to pay for shopping expenses. Online and offline shopping can get you additional rewards for every purchase.

Entertainment Credit Cards: Credit cards that provide discounts and offers on entertainment-related spends are known as entertainment credit cards. Such spends include movie ticket purchase, concert ticket purchase, amusement park ticket purchase, and other events.

Airmiles Credit Cards: Every rupee you spend with an air miles card will offer air mile points to your card account. Upon accumulating the air mile points, you can redeem them for free flight tickets or other goodies available on the redemption catalogue.

Lifestyle Credit Cards: This type of credit card gives benefits when the card is swiped for lifestyle expenses such as premiere screenings, nightlife, fashion shows, and more.

Premium Credit Cards: Premium credit cards are dedicated for selected few. It provides free access to golf clubs, airport lounges, concierge service, and insurance. It may also come with complimentary travel and hotel accommodation coupons. Some cards also offer a personal relationship manager to handle the assets of the cardholder. Not everyone can get approval to own this card.

Co-Branded Credit Cards: Banks tie-up with brands to bring out co-branded cards that provide special discounts and deals when you make a transaction associated with the brand. Though you can make other transactions, they wouldn’t be very profitable. This strategy is, generally, used to increase the customer base for the brand.

Student Credit Cards: The primary users of this category of cards are college students. The card considers the fact that students do not, often, have a credit history. The approval for a student credit card has fewer criteria to be satisfied as compared to the other full-fledged cards. It also comes with a lower interest rate.

Business Credit Cards: These cards are designed specifically for business use. This is to make sure that business and personal expenditure are maintained separately. However, even a business credit card requires you to have a good credit history to be eligible. This is because the card issuer considers the applicant to be accountable for bill repayment.

Prepaid Cards: Prepaid cards require you to load money before they can be used. Every transaction you make with the card, funds are fetched from the card balance. There is no finance charge or minimum payment criterion applicable to this card.

Tax Deduction on Credit Card Fees

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. However, 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.

To claim Tax Deductions;

It is important to keep personal and business expenses separate. Personal expenses paid with a corporate card are not deductible. Therefore, we recommend that you use separate credit cards for personal and business use. This facilitates the accounting and segregation of tax-deductible expenses. We also recommend paying from your business account if you are only transacting for business purposes. Expenses cannot be charged for tax purposes if the entrepreneur uses the company's credit card for personal use. Annual fee deductions for such cards should also be verified. Therefore, it is important to have a clear separation between cards, transactions and payments.

Tax payers should not claim deductions for cards that are primarily used for personal and temporary 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 network. Visa or Mastercard. Also, if you pay by credit card, you will pay a fee to the card company for each transaction. All of these duties and fees can be claimed as a business expense and are tax deductible on your tax return.