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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.
About Income Tax Credit
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.
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.
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.
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.
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.
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.
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.
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