Tax Credit

Tax credit is a sum of money that you can directly subtract from the taxes that you owe. It is not the same as deductions and exceptions, as it directly reduces your tax bill rather than just lowering your taxable income. 

You can categorise tax credit into 2 types. One is refundable, where you get a refund if the credit exceeds your tax liability. The other is a non-refundable tax credit, which allows you to get a reduction on your tax payment but not a refund.

Here is a tax credit example: Suppose you have an annual income of ₹4,20,000, and after deduction, your net taxable income reduces, lowering your tax liability to ₹8,000. Since your annual income is below ₹5,00,000, you are eligible for a tax credit of ₹2,000.