Tax breaks are the saving up of funds that would otherwise be paid in the form of taxes. Tax Breaks includes all the permissible exemptions, deductions and tax credit. Now let us discuss all the elements of tax breaks in detail:
It is an exemption from taxes imposed on specific goods or things. But the govt. relieves the tax payer of his tax liability. For example,all the IT companies set up in Special Economic Zones(SEZs) are exempted from paying taxes in India. Many incomes and benefits may be exempt from taxes to some extent, such as gifts, inheritances, income from local bonds, employee discounts, etc.
Any money spent by a taxpayer that is allowed to be subtracted from his gross income leading to fall in the total tax liability is called deduction. For example,if we donate some money for flood relief fund,we can use the same for tax deduction purposes. Hence, it gives tax breaks to the payer.
It is an absolute value derived from some variable on which the governing body has promised to provide tax credit. Tax credit is considered to be better than deduction because it reduces tax liability on actual basis while a deduction only removes a certain percentage of tax to be paid.
Benefits of giving Tax Breaks:
The tax payers file their return honestly to a greater extent.
The govt. is able to curb tax evasion.
More and more people register themselves as tax payers.
Govt. is able to maintain liquidity in th hands of public.
Tax breaks allow the prosperity of under-developed areas of the country.
There is generation of employment,since few zones become tax free zones.
It also leads to minimal events of tax resistance.
All the strategic sectors of the economy such as scientific research,R&D,etc. are encouraged through tax breaks.
Tax breaks are really important for the optimum and steady growth of any economy. Presence of tax breaks allows people to invest in assets like houses,buildings,etc. Leading to capital formation in the country. Moreover,it brings a voluntary reform in the public to be a part of tax paying population and reap the benefits of tax breaks.
Last Updated on : 5th July 2013