These terms are
tax credit and tax deduction. So what do these two terms actually mean? Let's take a closer look.Tax credits are basically rebates that the government can provide in case of special circumstances surrounding a person. Some tax credits made available in India are:A tax deduction is an investment in an instrument that can directly lower the taxable income of a person. Some examples of these deductions are investments in life or health insurance, mutual funds, tax saving fixed deposits and National Savings Certificates. Each of the instruments that provide these deductions are defined under various sections of the IT Act of 1961. However there is a limit to these deductions of Rs. 1.5 lakhs. This means that a person can make investments to the tune of Rs. 1.5 lakhs to reduce their taxable income. Any income above that mark will be liable for tax under the appropriate slabs.
