Well, it is common that people might have a misconception about tax credits, reliefs, and exemptions. It happens because of the lack of knowledge regarding the subject matter.
Now we will try to unlock their differences through a simple comparison.
Tax Credits
Tax reduction is probably the best thing that you can wish for. This is possible with tax credits as it lessens the tax amount that you are needed to pay. There are tax credits that are rewarded to you automatically while others require you to get them personally.
Tax credits that are not consumed are not refundable and are re-usable for the next tax year.
Tax Exemptions
There are various types of income that spare you from paying taxes. There are requirements, though that you need to comply with to qualify. Some examples are marginal relief and social welfare disbursements.
Tax Reliefs
When it comes to tax relief, it is decreasing the income on the tax that you are paying. This will lead to refunds of the tax that you have already paid. The relief amount that you will get is reliant on the tax rate that you pay.
Your income will be lessened by the relief if you shell out tax at the higher rate of 40 percent. On the other hand, it will be lessened by the relief and there will be a 40 percent tax on the balance.
Taxes are not there to become a burden instead to provide more opportunities to people. Since the money will be used for the different government projects, it is only fair to give our share as citizens. This will keep the country’s economy and governance top-notch at all times.