1. Annual and Joining Fees
Many rewards-focused credit cards in India come with a joining fee and a recurring annual fee. These can range from a few hundred rupees for basic cards to upwards of ₹10,000 for premium cards offering travel and lifestyle benefits. While banks often
offer welcome benefits like vouchers or bonus points to offset the joining fee, the annual fee is a recurring cost. Some cards waive this fee if you meet a certain spending threshold within the year, but falling short means you pay the fee, directly reducing your net savings from rewards. A card might seem attractive for its reward rate, but if the annual fee is high and your spending is low, you could end up paying more than you earn back.
2. High Interest on Revolving Balances
The single biggest destroyer of reward value is the interest charged on an unpaid balance. Indian credit card interest rates, often called finance charges, are notoriously high, typically ranging from 36% to 48% annually. This interest is not just charged on the amount you failed to pay; if you don't clear the full balance, you lose the interest-free grace period on all new purchases, meaning they start accumulating interest from day one. Many users believe paying the minimum amount due keeps them safe, but this is a costly trap that leads to a revolving cycle of debt where interest payments can quickly dwarf any rewards earned.
3. Goods and Services Tax (GST)
In India, nearly every fee associated with your credit card is subject to an 18% Goods and Services Tax (GST). This includes your annual fee, late payment charges, EMI processing fees, and even the interest you pay on a revolving balance. While GST isn't applied to the value of your purchases themselves, it's levied on all services the bank provides. This means a ₹1,000 annual fee actually costs you ₹1,180. Similarly, a late payment fee of ₹1,000 becomes ₹1,180. These small, taxable additions accumulate over time, adding another layer of cost that dilutes the net value of your reward points.
4. Reward Redemption Fees and Conditions
Earning points is only half the battle; redeeming them can also come at a cost. Many banks in India charge a reward redemption fee, typically a flat amount like ₹99 plus GST, every time you convert your points into vouchers, merchandise, or air miles. This fee might seem small, but it effectively acts as a tax on your savings. Furthermore, redemptions often come with restrictive conditions, such as minimum point requirements, blackout dates for travel bookings, or limited voucher availability. These hurdles can make it difficult to use your points for their maximum potential value.
5. Foreign Transaction Markup
For those who use their Indian credit cards for international travel or online shopping on foreign websites, the foreign currency markup fee is a significant cost. This fee typically ranges from 1% to 3.5% of the transaction amount and is charged to cover the cost of converting the currency. On top of this fee, an 18% GST is also applied to the markup charge, further increasing the cost. While some premium travel cards offer a lower or zero markup fee, most standard rewards cards apply this charge, which can easily negate the value of any points you earn on those international spends.
6. Point Devaluation and Expiry
Reward points are not a stable currency; their value can and does change. Banks can devalue their points overnight by increasing the number of points required for a flight or voucher, or by altering transfer partner ratios. Moreover, most reward points in India come with an expiry date, typically two to three years from the date they are earned. Many cardholders lose accumulated points simply because they forget to redeem them in time. This combination of potential devaluation and a fixed expiry date means that the points you are saving may be worth less in the future, or worth nothing at all if they expire.
