The tax credit has been an example of the fairness of the tax regime. There are some situations where a lawful taxpayer may end up paying more tax than they should. There have to be some ways through which the taxpayer can get back the additional tax paid or get compensated against future taxes. A tax credit is one mechanism to ensure this.
The tax credit is an amount that offsets the overall tax liability of a taxpayer. They are different from tax deductions. Unlike deductions, they are subtracted from the gross income of an individual's total tax liability. They reduce the tax liability irrespective of the base tax liability of the taxpayer.
There are different types of tax credits that taxpayers can pursue under Indian IT law. Some of the popular ones are listed below:
For example, a trader purchasing goods from a company to resell them pays GST on the goods price. He receives an input tax credit on goods purchased against the GST amount.
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If you are an Indian resident and have income from a foreign country, you will have to pay taxes in both countries. However, to avoid double taxation, DTAA allows for tax credits in the country you reside in. You can use the tax credit to minimize your tax liability.
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Different tax credits work differently. To understand how the tax credit works, we will take the example of foreign tax payments. You are an Indian resident and earn income in another country. Assume your total income is Rs 10,00,000 in a financial year from different sources. From the total income, Rs 2 lakh was earned as income from a foreign land. In India, you have to pay taxes at a 30% rate if your total income is Rs 10 lakh or above and 20% of your income is below Rs 10 lakh. The tax rate in the foreign land is 40%.
Without any credits, you have to pay Rs 1.925 lakh as taxes (20% of 5 lakh and 5% on Rs. 2.5 lakh + 40% of 2 lakh). However, with tax credits, the calculation will be as follows:
|Tax in India||Rs 1.925 lakh|
|Tax in foreign land||Rs 80,000|
|Tax credit provided||Rs 60,000 (30% of 2 lakh)|
|Overall tax to be paid in India||Rs 1.925 lakh - Rs 60,000 = Rs 1.325 lakh|
|Total tax liability||Rs 1.325 lakh + Rs 80,000 = Rs 2.125 lakh|
You can view your direct tax credits on the Form 26AS of the CBDT. You can view the form online. Follow the below steps to view the form and your direct (or income) tax credits:
a) Open the income tax e-filing website and look for the Form 26AS link.
b) Click on the link and register using your PAN, DOB, and other details.
c) Once you have provided the basic information, you are directed to the TDS-CPC website.
d) On the new page, scroll to the end of the page and look for the link titled - View Tax Credit.
e) Once you click on the link, you are taken to the page to view your tax credit.
f) You need to select the Assessment Year from the drop-down for which you need to view your tax credit. You can view the tax credit (Form 26AS) online or download it. The option can be selected under drop-down - View As.
g) Based on the above two inputs, your Form 26AS would be downloaded or can be viewed online.
TDS filing is done quarterly by most companies. If you don't see the expected tax credit in your Form 26AS, you will have to request the deductor to rectify the quarterly TDS (or TCS) statement using the prescribed correction statement.
You may also see no credits in your Form 26AS, and it could be because the tax deductor failed to file periodic TDS returns, wrongly quoted your PAN while filing, or for other reasons.
You must work with the deductor to get the due tax credit reflected in your Form 26AS and use it to reduce your overall tax liability. GST and input tax credits (indirect tax), however, show up on the GST portal only.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.