Shopping with Credit Cards for Diwali, Dhanteras? Know how to calculate tax on your payments

financialexpress.com:

Diwali, along with other festivals, is a time of celebration, joy, and increased spending in India. While you shop, exchange gifts, and participate in cultural festivities, it is important to understand the potential tax implications of your credit card spending. In this article, we will explore how to calculate tax on credit card spending during the festival season in India, allowing you to enjoy the celebrations while managing your finances responsibly.

Goods and Services Tax (GST) is a common tax associated with credit card spending in India. GST is an indirect tax levied on the supply of goods and services. The applicable GST rate varies depending on the nature of the product or service you purchase. To calculate the GST on your credit card spending:

a. Determine the GST Rate: First, identify the GST rate applicable to the specific item or service you have bought. GST rates range from 5% to 28%, or even higher for certain luxury items.

b. Calculate GST Amount: Multiply the GST rate by the total cost of your purchase. This will give you the amount of GST payable. For example, if you have spent ₹5,000 on gifts with a 12% GST rate, you will owe ₹600 as GST.

Also Read: Diwali 2023: Gifts from relatives are tax-free but these items received from anyone else are taxed!

While not directly tied to credit card transactions, income tax may apply to the rewards and cashback you receive from your credit card issuer. These benefits are considered a form of ‘income’ and may be subject to income tax. To calculate the tax on these rewards:

a. Determine the Value: Calculate the total value of the rewards and cashback received during the financial year. This may include cashback, discounts, or reward points converted into goods or