The Tax Credit Guide for Taxable Income, GST & 26AS
Excess amounts of tax credit can be utilized to be adjusted against future tax liabilities in an absolute manner. It means that the credit can be deducted from the taxable income regardless of the individual’s liabilities or tax bracket.
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A tax credit acts as a waver on how much taxpayer owes the government. They are not deduction or exemptions that reduce the amount of taxable income.
What is Tax Credit?
It is an amount or sum that can be deducted from the total tax that is payable by an individual. For example, if a person pays an excess amount of tax, then that excess amount can be used as a tax credit to be adjusted against tax liabilities in the future.
Income Tax Credit
A popular form of a tax credit is an income tax credit. Let’s say an individual is charged an invariable higher amount of taxes due to numerous reasons, then that surplus amount of tax will be available as a tax credit. This excess amount of tax credit can then be utilized to be adjusted against future tax liabilities in an absolute manner. It means that the credit can be deducted from the taxable income regardless of the individual’s liabilities or tax bracket.
Input tax credit under GST or GST input tax credit
When any services are provided, or goods are supplied to a taxable person, that GST charged is known as input tax. The input tax credit is also viable to the dealer who has purchased goods for resale.
This credit cannot be applied for all inputs, and each state has its own rules and regulations. For example, if a product is sold outside the state of manufacture, then the input tax credit or GST tax credit will have to reverse to the authorities. Also, if that product has tax exemptions, then the input tax credit will not apply to that product.
What is the time limit to avail GST Input tax credit?
A registered tax professional can avail ITC in a specific manner, but he or she needs to do so within the specified time frame. Listed below are a few scenarios in which the tax refund can be claimed. (Please note that ITC can be claimed for the below-mentioned scenarios if the time limit does not exceed one year from the tax invoice date)
When an individual is granted registration or has applied for registration or is liable to register. This individual can claim ITC from the day he or she is liable to pay taxes.
When an individual has taken voluntary registration, he or she can claim GST input tax credit from the day of registration.
When a registered taxable person stops paying taxes in a composition levy scheme, he or she can claim ITC from the day the individual is liable to pay taxes again.
Is Tax Credit and Tax Deduction the same?
A tax credit is a rebate the government provides in certain circumstances. Whereas a tax deduction is a deduction offered on certain stipulated investments. Some instances where a tax deduction is provided are mentioned below:
- Section 80 C for life insurance.
- Long-term fixed deposits.
- Provident funds.
- Contribution to health insurance of dependents under 80 D.
The idea is to make individuals invest in long-term social security; this ensures that at least a part of their taxable income is saved compulsorily.
What is Foreign Tax Credit?
As per the (DTAA) Double Taxation Avoidance Agreement, Indians can avail for Foreign Tax Credit. India maintains a Double Taxation Avoidance Agreement with over 80 countries. According to this agreement, an Indian citizen living in India and earning an income from abroad can avoid double taxation if the host country has deducted TDS on income.
26AS Tax Credit
The 26AS tax credit statement is a form provided by the Income Tax Department.It allows individuals to view their tax statements. Individuals can see the following information in the form:
- Deductions on the taxpayer’s income
- Tax collection details from the collector
- Self-assessment tax/advance tax/regular assessment tax that has been deposited by the pan holder
- Tax refund for that financial year
- Details regarding HVT’s or high-value transactions like mutual funds, etc.
Please note an individual must have his/her PAN view their respective tax credit statements.
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