Everything you need to know about paying rent with your credit card

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A few years ago, no one would have imagined that people would one day be able to pay their monthly rents with credit cards. But, it had to happen soon. RedGirraffe was the first to allow its customers to use this facility.

Benefit for users

Premium credit cards like HDFC Infinia/Diners Club Black or Standard Chartered Ultimate offer 3.3% back (cashback, rewards points or airmiles) on almost any spend. Even after factoring in the 0.46% fee, users get a 2.8% return on an expensive transaction like rent. This has helped users achieve the step-based and spend-based rewards offered by credit card companies. These additional rewards further boosted the overall yield of rent payments. Users also got automated rent receipts and digital proof of rent payments, in addition to an interest-free credit period of up to 45 days. Additionally, rent payments helped customers increase their overall credit card spending, after which they became eligible for annual fee waivers, credit limit enhancements, and service upgrades. map features.

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Entry of other players

Looking at the success of RedGirraffe and Nobroker, real estate brokerages like Housing, Magicbricks and fintech platforms like Paytm, Cred and Phonepe, have also entered this new space. Each had its own advantages and disadvantages. RedGirraffe had the lowest convenience fee of 0.46%, but its user interface was not good. Nobroker had the most partnerships with banks, while Cred allowed payment to a homeowner through UPI. Paytm and PhonePe relied on their large customer base. Increased competition has opened up new avenues like paying tuition, brokerage, security deposits, office maintenance and rent, but it has also led to less auditing and scrutiny of antecedents.

Credit turnover and implications

To capture more market share, many platforms made the rental agreement optional or didn’t even ask for it. So, users can now enter bank details or UPI of friends or family members and claim it as rent. Later, these users could ask the same person to transfer the amount to their bank accounts. The net impact of these transactions was pure credit rotation that only helped users create manufactured spending and enjoy the previously mentioned rewards. Although one may have the impression that all is well, one should not ignore the consequences of such transactions.

Rent received by a friend or family member will be treated as income from a rental property and added under the heading of income from a property after a standard deduction of 30%. Depending on the prices of the tiles, a tax of up to 30% + surcharge + cess may be levied. Even the payer, i.e. the user of the credit card, is required to deduct the tax u/s 194-IB at the rate of 5% if the rent is higher than 50,000 every month. In the event of non-deduction/filing of taxes to the government, the payer will become an assessed person in default and will have to pay interest and penalties accordingly. In addition, a fraud and misrepresentation case may also be filed against the user.

Measures taken by banks

Credit card issuers followed these developments and as the volume of these transactions increased, many began to restrict spending as well as reward points on rent payments. RBL Bank allowed only one rent payment per month, with a maximum cap of 50% of its Shoprite card credit limit. Axis Bank stopped reward points for paying rent on its ACE card and capped its super premium cards. In June, HDFC Bank capped all management services, including rent, at 500-2,000 reward points per month.

Paying rent with a credit card can help earn rewards, but using it as a method of credit rotation comes with its own risks. Its charm is slowly fading as many banks have capped reward points on rent payments and restricted the use of credit limit for this purpose and this list of banks will continue to grow.

Kashif Ansari is an assistant professor at Hansraj College, University of Delhi. He can be found on Twitter @2jhg

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