Indirect tax credit

Indirect Tax Credit – An indirect tax credit is a provision that allows businesses to offset the indirect taxes paid on inputs (such as raw materials, goods, or services) against the indirect taxes they collect on their output sales. This mechanism ensures that tax is levied only on the value added at each stage of production or distribution, preventing double taxation and reducing the overall tax burden on businesses. Key Features: Applies to taxes like GST, VAT, or excise duty. Businesses can claim credit for taxes paid on inputs against the tax liability on output. Encourages compliance and reduces cascading effects of taxation. Example: A manufacturer pays ₹50,000 GST on raw materials and collects ₹80,000 GST on the sale of finished goods. The manufacturer can use the ₹50,000 paid as an input tax credit, remitting only ₹30,000 to the government.