I’ve only recently joined the working force, and I am still not sure of this entire concept.
I know I am supposed to go to an accountant and show him a slip from my job for the returns, and also slips from my stocks that show all the net changes.
What I don’t understand is \*why\* I receive a certain amount after doing all of that.
In: 8
Ideally the government already takes things like income tax out of your salary as you get paid. To do that they have to predict what your total income will be for the financial year. A tax refund is them overestimating it – it’s tax you shouldn’t have paid in the first place. If you got fired or took a pay cut, you might have overpaid those taxes and are eligible for a return. If you got a raise, or profited from other sources of income or investments like shares in a company that are impossible to predict, you may have underpaid taxes and owe money.
The government also wants to incentivize behaviour that benefits society or the economy. Eg. donating to charity, or buying products that help you work. To encourage that behaviour they will charge less tax on them. But these expenses aren’t predictable, and you already paid tax on them (in the form of income tax, sales tax etc). So you should declare them at the end of the financial year, then the government will refund the taxes you paid on them.
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