A number of years in the past, no person would have imagined that individuals would sometime be capable of pay their month-to-month rents with bank cards. However, it was certain to occur quickly. RedGirraffe was the primary to permit its prospects to make use of this facility.
Profit to customers
Premium bank cards like HDFC Infinia/ Diners Membership Black or Customary Chartered Utimate supply 3.3% return (cashback, reward factors or airmiles) on virtually all spends. Even after contemplating the 0.46% cost, customers get 2.8% return on a big-ticket transaction like lease. This helped customers obtain milestone- and spend-based rewards provided by bank card corporations. These extra rewards additional pushed up the general return from lease funds. Customers additionally bought automated lease receipts and digital proof of lease funds, apart from interest-free credit score interval of as much as 45 days. Additionally, lease funds helped prospects improve their general bank card spend, whereupon they turned eligible for annual charges waiver, credit score restrict enhancement and card function upgrades.
Entry of different gamers
Wanting on the success of RedGirraffe and Nobroker, actual property brokerage corporations like Housing, Magicbricks and fintech platforms like Paytm, Cred, and Phonepe, additionally entered this new house. Every had their very own advantages and drawbacks. RedGirraffe had the bottom comfort charges of 0.46% however its consumer interface was not good. Nobroker had the best variety of partnerships with banks, whereas Cred allowed fee to a landlord via UPI. Paytm and PhonePe relied on their huge buyer attain. The rise in competitors opened new avenues like fee of training charges, brokerage, safety deposits, upkeep and workplace lease, but it surely additionally led to much less background checking and scrutiny.
Credit score rotation and implications
To seize extra market share, many platforms both made the lease settlement elective or didn’t even ask for it. So, customers may now enter financial institution particulars or UPI ID of both associates or relations and declare it as lease. Later, these customers may ask the identical particular person to switch the quantity again to their financial institution accounts. The web impression of those transactions was pure credit score rotation which solely helped customers to create manufactured spending and benefit from the rewards talked about earlier. Whereas one may really feel that every thing is okay, one mustn’t ignore the results of such transactions.
Hire obtained by a pal or member of the family will probably be handled as revenue from rented property and added beneath the pinnacle of revenue from home property after 30% normal deduction. Relying on the slab charges, a tax of as much as 30% + surcharge + cess might be levied. Even the payer, i.e. the bank card consumer, is required to deduct tax u/s 194-IB on the fee of 5% if the lease is greater than ₹50,000 in any month. In case of no deduction/deposit of tax to authorities, the payer will develop into an assessee-in-default and has to pay curiosity and penalty accordingly. Additional, a case of fraud and misrepresentation might be even be filed towards the consumer.
Steps taken by banks
Bank card issuers have been following these developments and when the quantity of such transactions went up, many began limiting the spends in addition to reward factors on lease funds. RBL Financial institution allowed just one lease fee in a month, with a most cap of fifty% of the credit score restrict for its Shoprite card. Axis Financial institution stopped the reward factors for lease fee on its ACE card and put a cap on its tremendous premium playing cards. In June, HDFC Financial institution capped all administration providers, together with lease, to 500-2,000 reward factors monthly.
Hire fee via bank card might help earn rewards however utilizing it as a way for credit score rotation comes with its personal dangers. Its allure is slowly fading away as many banks have capped the reward factors on lease funds and restricted the usage of credit score restrict for such function and this record of banks will proceed to develop.
Kashif Ansari is an assistant professor at Hansraj School, College of Delhi. He might be discovered on twitter @2021kashif.
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