Input Tax Credit (ITC)

Input Tax Credit (ITC) – Input Tax Credit (ITC) is a mechanism under the Goods and Services Tax (GST) system that allows businesses to reduce the tax they have paid on purchases (inputs) from the tax they owe on sales (outputs). Essentially, ITC ensures that the tax is levied only on the value addition at each stage of the supply chain, preventing the cascading effect of taxes. Businesses can claim ITC for taxes paid on goods or services used for business purposes, provided they have valid invoices and comply with GST regulations.

Example: A manufacturer purchases raw materials worth ₹1,00,000 and pays ₹18,000 as GST. When selling finished goods, the manufacturer charges ₹36,000 GST. Using ITC, the manufacturer can offset the ₹18,000 paid earlier and remit only ₹18,000 to the government.