Taking an example, now we consider a company QRS, which was to receive Rs1000 from a customer. The customer never paid back the company, so the company wrote off the receivable. We know that the write off if tax deductible, so it is indirectly a tax benefit for company and the company lowered its tax that it would pay. Now after 2 years the person repaid the Rs.1000, so the company now has to consider this and repay the tax that it had benefitted two years before. This tax benefit rule shouldn’t be used by companies to gain unlawful tax benefit, hence this is closely monitored and a tax benefit should be followed by a certificate that confirms that the company has legally gained a tax benefit certificate.
Taking an example to better understand, in India per say if any person donates some amount to an NGO, he is eligible for tax benefit of the same amount from his income tax. There can be other examples like if a person’s installs energy efficient systems in their homes, they would be entitled to some amount of tax benefit. Also a company ensuring that environmental damage is not done while doing some construction or any other work may also be eligible for some tax benefit. Tax benefits provide advantage to not only individuals, but it also is beneficial to other stakeholders also.