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Last Updated:September 17, 2025, 11:05 IST
A person who pays card bills with more than Rs 1 lakh in cash can trigger further scrutiny. The paper trail matters, and so does the scale.
Lending Your Credit Card to Friends? Here’s the Hidden Tax Risk
It starts out as a friendly gesture: you swipe your credit card to book a friend’s flight or pay for a laptop, and they promise to pay you back right away. But if you make a habit of it, the Income Tax Department might not see it as simple goodwill. Regularly paying for friends and getting reimbursed can look like income, and that can put you on the taxman’s radar.
When a Simple Repayment Turns Complex
Imagine Rahul, who uses his card to buy a Rs 75,000 laptop for his friend Ajay. Ajay transfers the money back the next day. Once or twice, this is harmless. But if Rahul keeps doing this for Ajay or other friends, big purchases, frequent repayments, the pattern begins to resemble earnings rather than casual help.
Banks are required to share data on credit card spending above Rs 10 lakh in a financial year with tax authorities. A person who pays card bills with more than Rs 1 lakh in cash can trigger further scrutiny. The paper trail matters, and so does the scale.
The concern is source of funds. If large sums keep entering your account as repayments, the Income Tax Department can ask whether these transfers represent undeclared income or even a side business.
Even if you can prove the money belonged to someone else, the burden of explanation is on you. Investigations can mean time, paperwork and, if records don’t match, potential penalties.
How to Protect Yourself
The safest move is to keep every transaction through traceable banking channels like UPI, NEFT, or IMPS. Avoid taking or giving cash to settle credit card dues. If you must front a large payment, get a short written agreement or email confirmation that clearly states the purpose and repayment details.
And most importantly, don’t turn this into a routine. Occasional help for a friend is unlikely to invite trouble, but repeated, high-value transactions can make you look like an unregistered lender.
Helping a friend once in a while is fine. Turning your credit card into a mini bank for others is risky. The Income Tax Department doesn’t care about the friendship, it cares about unexplained money flows. A few cautious steps now can save you from a long explanation later, and keep that friendly swipe from turning into a tax headache.
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The News Desk is a team of passionate editors and writers who break and analyse the most important events unfolding in India and abroad. From live updates to exclusive reports to in-depth explainers, the Desk d… Read More
First Published:
September 17, 2025, 11:05 IST
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Imagine Rahul, who uses his card to buy a Rs 75,000 laptop for his friend Ajay. Ajay transfers the money back the next day. Once or twice, this is harmless. But if Rahul keeps doing this for Ajay or other friends, big purchases, frequent repayments, the pattern begins to resemble earnings rather than casual help.
Banks are required to share data on credit card spending above Rs 10 lakh in a financial year with tax authorities. A person who pays card bills with more than Rs 1 lakh in cash can trigger further scrutiny. The paper trail matters, and so does the scale.
The concern is source of funds. If large sums keep entering your account as repayments, the Income Tax Department can ask whether these transfers represent undeclared income or even a side business.
Even if you can prove the money belonged to someone else, the burden of explanation is on you. Investigations can mean time, paperwork and, if records don’t match, potential penalties.
How to Protect Yourself
The safest move is to keep every transaction through traceable banking channels like UPI, NEFT, or IMPS. Avoid taking or giving cash to settle credit card dues. If you must front a large payment, get a short written agreement or email confirmation that clearly states the purpose and repayment details.
And most importantly, don’t turn this into a routine. Occasional help for a friend is unlikely to invite trouble, but repeated, high-value transactions can make you look like an unregistered lender.
Helping a friend once in a while is fine. Turning your credit card into a mini bank for others is risky. The Income Tax Department doesn’t care about the friendship, it cares about unexplained money flows. A few cautious steps now can save you from a long explanation later, and keep that friendly swipe from turning into a tax headache.
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