As per Section 2(63) of Central Goods & Service Tax Act, 2017 ITC (Input Tax Credit) means “Credit of Input Tax”. It is the tax which business pays on the purchase of Goods & Services and is reduced from liability payable on outward supplies i.e. Sales. In other words, the Input Tax Credit allows GST registered businesses to claim credit of GST at the time of sale of goods, which was paid on the purchases of such goods to avoid the cascading taxation effect. The Input Tax Credit (ITC) is the backbone of Goods & Services Tax & its mechanism can be explained with the help of the following example.
Mr. X purchased Raw material for Rs. 10,000 on which GST @18% was Rs. 1800. He manufactured products and sold goods for Rs. 15000. GST Payable @18% is Rs. 2700
Tax on output (Sale)
|Tax on input (Purchase)||
Mr. X can claim ITC of Rs. 1800, thus net GST Payable through cash is Rs. 900.
In case of any query related to GST Return or to undertake the process of claiming Input Tax Credit, Contact your Trustworthy Advisor ‘Manthan Experts’.