Tax Deduction and Tax credit statement
Income Tax deduction is simply when there is reduction in income which is taxable. When we reduce the income on which we have to pay tax then subsequently tax also reduces. Expenses which can be deducted from income could be medical expenses, leave travel allowance, insurance expenses, property taxes and interest on mortgage etc. These are those expenses which generally all people have to bear. People become very happy when they will get a way to save tax by using these expenses. Tax deduction involves lots of conditions according to Income Tax Act. Tax deduction is applicable for products which offer current benefit with some exceptions. Tax deduction is allowed at a limited amount for each category and these are mentions in Income Tax Act.
The amount which can be deducted from total tax has to be paid is tax credit. First of all tax due is calculated by subtracting tax deductions. Then from tax due, tax credits are subtracted. Tax credit generally involves some categories like earned income credit, lifetime learning credit, Make work pay credit and green energy tax credits. Tax systems allow tax credit to different class of tax. Calculation of these tax credits very from one class to another. Tax credit is different from tax deduction as tax credit reduces liability of tax while tax deduction reduces amount of tax payable.
Tax credits can either be refundable or non refundable. Refundable tax credits are those in which when tax credit is greater than tax liability then refund is possible. Non refundable tax credits are those which can make tax payable zero but are not capable to provide refund of tax.
Refundable tax credits
Non refundable tax credits:
Credit for elderly and disabled
Foreign tax credit
Child tax credit
Child and dependent care credit
Lifetime learning tax credit
Tax credit Statement (26AS form):
According to Income Tax Act, everyone which pays tax should be provided an annual tax statement. Every PAN holder is allowed to view their Tax credit Statement online. Tax credit statement is also known as Form 26AS. Form 26AS include: