Definition
Input Tax Credit (ITC)
Input Tax Credit lets a GST-registered business offset the tax it has already paid on purchases against the GST it collects on sales, so tax is levied only on value added.
ITC is the mechanism that makes GST a value-added tax rather than a tax on tax. A manufacturer or trader pays GST on inputs and claims credit for it, paying the government only the difference between output tax and input credit. This avoids the cascading of taxes that plagued the earlier regime.
Claiming ITC requires valid tax invoices, the supplier actually depositing the tax, and the credit appearing in the recipient's electronic credit ledger via auto-populated returns. Mismatches, blocked credits on certain items, and time limits on claiming credit make ITC one of the most litigated areas of GST.
Related terms
- GSTR-2BGSTR-2B is an auto-generated, static statement that tells a buyer the input tax credit available based on suppliers' filed returns.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.