Input tax

Input Tax – Input tax refers to the tax paid by a business on purchases of goods or services that are used in the course of business. Under a value-added tax (VAT) or goods and services tax (GST) system, businesses can claim a credit for input tax against the tax collected on their sales, thereby reducing the net tax liability. Key Points: Helps avoid tax-on-tax (cascading effect). Applicable only for purchases used in business operations. Must be supported by valid tax invoices to claim the credit. Example: A manufacturer buys raw materials worth ₹1,00,000 with ₹18,000 GST. If the manufacturer collects ₹36,000 GST on the sale of finished goods, the net GST payable is ₹36,000 − ₹18,000 = ₹18,000