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Income tax credit as the name suggests is the credit that is available to the assessees. It enables taxpayers to reduce their tax burden for that financial year or avail credits against future tax liabilities.

Income tax credits are different from the deductions that are available to the assessees under the Income tax Act, 1961. While the deductions allowed to the taxpayer reduces the taxable income of such assessee, the income tax credit reduces the tax burden by directly reducing the tax amount or offsetting the credit available against the final tax amount to be paid.

There are various types of tax credits available under the income tax laws prevailing in our country. One of the most popular tax credits available to manufacturers and traders is the input tax credit. Given below are the details of various tax credits available to the tax payers in our country as per the Income Tax Act, 1961.

Income Tax Credit - What it is and Types

Income tax credit as mentioned above is the credit that can be availed by the taxpayer in the event of excess payment of tax. This credit will enable the taxpayer to set off the tax credit against future tax payments. This credit can also be available in the form of deferred tax which is a very common balance sheet item. The most common reason for deferred tax among many others is the depreciation on assets. This is due to the difference in the rate of depreciation as per the income tax rules and as per the Companies Act, 2013.

There are many examples of income tax credit available to taxpayers in the form of rebates or just credits that can be carried forward to be set off against future tax liability. Some of such examples are mentioned below.

  • Income tax credit is given in the form of rebate up to Rs. 12,500 under section 87A for financial year 20-21 which is available to taxpayers who have income less than Rs. 5,00,000 but are liable to pay a tax.
  • Income tax credit is also available to persons with disabilities who fall under a particular income bracket and fulfill the conditions set in this regard.

Input Tax Credit

Input tax credit as mentioned above is another most common form of tax credit available to taxpayers. This form of tax credit is available to the manufactures, traders or dealers of the goods and services.

Simply put, the manufacturer is entitled to an input tax credit for the purchase of raw materials and other items that are required for production of goods. When such goods are sold to the dealer or the traders, the input tax credit is passed to them until the final benefit of the tax is received by the ultimate consumer.

Input tax credit can be received for capital goods purchased for the process of production of goods as well.

The prerequisite to receive or avail the input tax credit is that the final product manufactured by the assessee cannot be part of the list of exempted goods or services. In such a case, the input tax credit cannot be availed by the manufacturer and cannot be passed on as well to the next trader or dealer in the course of its journey to the ultimate consumer.

If the tax credit is availed at any stage in such a scenario, such tax credit has to be duly reversed and the defaulter may be subject to penalty as well. Input tax credit is state specific and therefore, the rate of credit as well as the time period to avail such credit may vary from state to state.

Any manufacturer or trader or dealer found to be availing input tax credit wrongly is subject to stringent action as per the provisions of the Income Tax Act, 1961.

Foreign Tax Credit

The concept of foreign tax credit is more known as relief from double taxation as per the Income Tax Act, 1961. This credit basically provides relief to the taxpayers from getting their income taxed more than once where such income is subject to tax in more than one country. India has a Double Tax Avoidance Agreement (DTAA) with many countries across the globe. This ensures that the tax payers are not burdened by getting their income unnecessarily taxed in more than one country at the same time protects the country from loss of revenue.

According to this agreement, if a person, who is a resident of India, is taxed in a foreign country where he/she currently resides for various purposes like employment, education, etc., such person is allowed tax credit for the tax deducted at source in the foreign country. This agreement thereby safeguards the taxpayer from the burden of double taxation. The credit available can be utilized to reduce the tax burden in the country.

What is Form 26AS?

The Income Tax Department has a separate Form 26AS that enables the taxpayers to view the total of tax credits available to them for any particular financial year. A taxpayer needs to have a valid PAN card in order to access Form 26AS from the website of the Income Tax Department.

The contents of Form 26AS are mentioned below.

  • Details of TDS deducted from tax payer’s income
  • Details of TCS (Tax Collected at source)from tax payer’s income
  • Details of Regular Assessment Tax/ Advance Tax/ Self-Assessment Tax etc. which has been deposited with the Department.
  • Details of Refunds issued to the assessee during the financial year
  • Details relating to high value transactions in instruments such as mutual funds, equities etc.

How to view the tax credit available under Form 26AS?

An assessee can view the tax credits available to him/her for the particular financial year under the Form 26AS issued by the Department.

The process to view Form 26AS is given below.

  • The assessee has to first open the income tax e-filing website
  • Next step is to click on the link for form 26AS.
  • The assessee will have to register at the portal by providing the DOB, PAN and other relevant details.
  • After that the assessee will have to follow the steps as guided on the website which will redirect the assessee to the TDS-CPC website during the course of registration.
  • The assessee will then have to scroll to the bottom and click on the link titled ‘View Tax Credit (Form 26AS)’.
  • Following this, the assessee will be presented with two fields titled ‘Assessment Year’ and ‘View As’.
  • Here, the assessee will have to select the assessment year that he/she needs to view the tax credit details for through the drop-down menu.
  • If the assessee wants to only view the statement online, the next field can be left unchanged to the default option of HTML.
  • In case the assessee wants to download the file, the option to be selected is PDF from the drop down menu.
  • Form 26AS will be displayed on the screen.

Form 26As can also be viewed online on the website of banks that are registered with the NSDL for the purpose of presenting Form 26AS or the tax credit statement. If the assessee’s bank is already registered with the NSDL, he/she can view Form 26As from the website of such bank.

FAQS on Income Tax Credit

1. What is an income tax credit?

Income tax credit is the credit available to the taxpayers for excess tax paid currently which can be set off against future tax liabilities.

2. What is the amount of rebate available under section 87A?

Under section 87A, a person can get a rebate of 100% of the tax paid or up to a maximum of Rs. 12,500 if the total income does not exceed Rs. 5,00,000.

3. Can a person view the tax credit available to him/her?

Yes. A person can get the details of the tax credit available to him/her for a particular financial year by viewing the Form 26AS available on the website of the income tax department.

4. Are the details of TDS paid available in Form 26AS?

Yes. The taxpayer can get the details of the TDS paid and deposited with the department in Form 26AS.

5. Can input tax credit be carried forward?

The input tax credit is governed by state laws and the period of carrying it forward may vary from state to state.

Income Tax Credit - Customer Reviews

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