Credit card charges explained: late fee, forex markup, cash withdrawal and GST

Finance charges: interest on what you do not pay

If you pay your full statement balance by the due date, you usually pay no interest on purchases. Pay less than the full amount and the card charges interest, often at a monthly rate that adds up to a high yearly figure. Importantly, once you carry a balance, many cards also stop giving the interest-free period on new purchases until the balance is cleared, so new spends start attracting interest from the day you make them.

Paying the minimum due keeps your account in good standing, but interest keeps running on the rest. It is the most expensive way to use a card.

Late payment fee

If not even the minimum due reaches the card by the due date, a late payment fee applies, usually in slabs that rise with the size of the outstanding amount. Under the RBI's rules at the time of writing, a card account is treated as past due, and a late fee charged, only after the due date has passed by more than a short grace period, and the fee is to be charged on the outstanding amount due rather than in a way that penalises you twice. A late payment can also be reported to the credit bureaus, which costs far more over time than the fee itself.

The simplest protection is an auto-debit for at least the minimum due, with a reminder to pay the full amount before the date.

Cash withdrawal from an ATM

Withdrawing cash on a credit card is one of its costliest uses. There is usually a cash advance fee on each withdrawal, often a percentage of the amount with a minimum, and interest typically starts from the day of withdrawal, with no interest-free period. Some cards also count certain transactions, such as wallet loads or some transfers, as cash-like and charge accordingly. Use a debit card or UPI for cash instead.

Foreign currency markup

When you pay in a foreign currency, abroad or on an international website, the card adds a foreign currency markup on top of the exchange rate. On many cards it is a few percent of the amount, plus GST on the markup. On a ₹1,00,000 trip spend, a 3.5% markup is ₹3,500 before GST; on a card with a 1% markup it would be ₹1,000.

Watch for dynamic currency conversion too: an overseas shop or website offering to charge you in rupees. It sounds convenient, but the rate offered is often worse than paying in the local currency and letting your card convert it.

Fees that come with EMI options

Converting a purchase into EMIs usually carries a one-time processing fee and an interest rate, with GST on both. Even "no-cost" EMI offers usually involve interest that is offset by a discount, plus GST on the interest and sometimes a processing fee, so the total is rarely exactly the sticker price. Foreclosing an EMI plan early can carry its own charge.

Smaller charges that add up

• Fuel surcharge: a small surcharge on fuel purchases, waived on many cards within a band of transaction sizes and up to a monthly cap.
• Rent and utility payments through some platforms or the card's own rules can carry a fee.
• Over-limit charges, where a card allows spending beyond the limit and charges for it.
• Card replacement, statement copies and cheque or cash payment of the bill can carry service charges on some cards.
• Reward redemption fees on some cards when you convert points to vouchers or miles.

GST on almost all of it

Goods and Services Tax applies to card fees and charges, including the annual fee, late fees, interest and forex markup. It appears as a separate line on your statement, and it means the real cost of every charge is higher than the headline number.

How to keep charges near zero

• Pay the full statement balance by the due date, every month, ideally by auto-debit.
• Never withdraw cash on a credit card unless it is a true emergency.
• Use a low or zero forex markup card for international spending, and always pay in the local currency.
• Read the EMI terms, including processing fee and GST, before converting a purchase.
• Check your statement each month for charges you did not expect, and raise any dispute quickly.

Spotting charges on your statement

Each monthly statement lists fees and taxes as separate lines, usually below your purchases. Look for words such as finance charges, late payment fee, cash advance fee, overlimit fee, forex markup or cross-currency fee, and the GST lines that follow them. Many issuers also show the total fees and charges for the cycle near the summary at the top.

If a charge looks wrong, raise it with the card issuer quickly through its customer care or app, and keep the reference number. If the issuer does not resolve it within the time set by the rules, or you are unhappy with the answer, you can complain to the RBI's Integrated Ombudsman, which handles complaints about banks and regulated lenders free of charge.

Quick answers

Where do I find my card's exact charges? In the card's most important terms and conditions (MITC) and its schedule of charges, on the issuer's website and with your welcome kit.

Can a late fee be reversed? Issuers sometimes waive a first late fee as a goodwill gesture if you ask, especially with a good payment record. It is a request, not a right.

Does a credit card refund reverse the GST? When a purchase is refunded the purchase amount returns; fees that were charged are a separate matter, so check the statement.

Is interest charged on the full bill if I pay most of it? Interest applies to the unpaid part, but carrying any balance can also remove the interest-free period on new purchases.

The bottom line

A credit card is cheap when it is used as a payment tool and cleared in full, and expensive when it is used as a loan. Know the charges in your own card's terms, and design your habits to avoid them. This guide is general information, not personal financial advice.