Tax Credit


Definition: Tax Credit

Tax credit is defined as the amount by which the tax payable is reduced for an entity (the entity may be an individual or a corporation). Tax credits are different from exemptions and deductions since tax credits directly reduce taxes. The value of tax credit depends on the grounds on which the credit is being provided to the entity.

For an individual, tax credits may be generally allowed for low income subsidies, child care allowance, disability care allowance, education subsidies for children, etc. For corporate, tax credits are allowed for research expenses, disaster relief, non-refundable investment tax credit, renewable energy generation and production, etc.

Governments may also provide tax credits for specific industries or to promote specific behavior among individuals.


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