Distinguish between Non-assessable Income, Tax Credit Income, and Tax-Free Income
Non-assessable Income is income you don’t need to pay tax on. A tax credit is an amount of money that taxpayers can subtract from taxes owed to their government. For many investors, the interest earned from municipal bonds is not subject to federal income taxes. That income is tax-free. There are some differences between Non-assessable Income, Tax Credit Income, and Tax-Free Income. These are as follows –
Non-assessable Income
- It is not included in the total income.
- It has no impact on the determination of total taxable income.
- This type of income does not increase the total taxable income and tax liability.
- The questions of the tax rebate on this category of intact do not arise as it is not included in total income.
- This type of income has a positive impact on the total taxable income and tax rate.
Tax Credit Income
- It remains in the total income.
- It is considered to determine the net tax liability.
- This type if income influences the minimum taxable limit and increases total income.
- The tax rebate is allowed on this category of income up to the certain limit at a certain rate.
- This type of income has a positive impact on the tax liability of an assessee.
Tax-Free Income
- It remains in the total income.
- It increases the total taxable income and tax rate of the assessee.
- This type of income increases the total taxable income and tax rate.
- A tax rebate is granted at an average rate on the total tax-free income.
- This type of income increases tax rate. But tax rebate is granted at an average rate.
There are also many differences between them which make then different each forms another.
