Which of the following statements best describes the term lsquo Tax credit rsquo ........

Economic Affairs Tax System

Which of the following statements best describes the term ‘Tax credit’?

It is reward given by the government for tax payers who pay the tax in advance.

It is a type of credit given by banks such as education loans which do not come under the purview of taxable income.

It is the amount of money collected from a taxpayer for a specified purpose, as tax on tax.

It is a sum that can be subtracted from the total payable tax and offsets the overall liability.

Tax credit is an amount that offsets the overall tax liability of a person. It is basically the sum that can be subtracted from the total payable tax by an individual.
Tax credits are different from deductions as deductions are applicable indirectly, i.e. they help in reducing the base taxable amount of an individual, whereas tax credits directly reduce the amount of liability irrespective of the base tax liability of the tax player.

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