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Got confused between a tax credit and deduction?
Read the following piece and clear all confusions regarding tax credit vs tax deduction. So, let’s start!
A tax credit is an amount that the Government provides in exceptional circumstances to reduce the tax liability. Following is a list of credits available in India -
Citizens aged above 65 years can avail credit of up to ₹ 20000.
If individuals have earned income outside India and paid taxes for that abroad, then they can claim a tax credit in India.
Individuals with less than ₹5 lakh of income p.a. but liable to pay taxes can claim a credit of ₹2000.
Specially-abled individuals who fall under a specific income bracket also receive tax credits.
Deductions are claims placed to reduce taxable income from different investment instruments such as mutual funds, National Savings Certificate, life insurance, tax-saving fixed deposits etc. The deductions are listed under various sections of the IT Acts. Individuals can claim a maximum of ₹1.5 lakh as deduction. Income above this amount is taxable as per the IT slab rate applicable to them.
Below is a list of a section that governs deduction in India,
With a clear understanding of tax credit and deduction, we can proceed to answer questions like how a tax credit differs from a deduction.
Follow the table mentioned below to learn about the difference regarding tax credit versus deduction,
|
Tax Credit |
Tax Deduction |
|
It decreases the actual amount of tax an individual owes to the Government. |
It decreases the income on which tax amount is computed. |
|
It is applicable after the deductions are made. |
It is available before the imposition of tax credit. |
A tax credit directly decreases taxes. On the other hand, deductions lower the taxable income and rate, which is necessary to compute the tax. Therefore, credit is more preferable to a deduction of the same amount.
Read and understand the various pointers of tax credit vs tax deduction and make an informed decision before applying for either one.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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