ITC, or Input Tax Credit, is the amount a business can claim after paying GST on eligible purchases for the business. Instead of paying tax on expenses to support the business, the ITC can be claimed to reduce the GST liability.
ITC can be claimed for various expenses: raw materials, services, business equipment. A business must have a proper tax invoice and meet certain GST compliance conditions to claim a refund.
How It Works:
- Businesses purchase goods or services.
- GST is paid on the purchase.
- Eligible ITC is recorded.
- Businesses collect GST from customers.
- Eligible ITC is adjusted against GST payable.
Benefits:
- Reduces overall GST liability
- Helps improve business cash flow
- Avoids tax being charged repeatedly
- Encourages proper GST documentation
Example:
A manufacturer pays ₹18,000 GST on raw materials and collects ₹30,000 GST from customers. If the purchase qualifies for ITC, the manufacturer can use the ₹18,000 credit and pay the applicable balance.