Input tax credit (ITC) is one of the key features of the Goods and Services Tax (GST) system in India. It allows businesses to claim credit for the taxes paid on their purchases and use that credit to offset the tax liability on their sales. In other words, ITC is the mechanism through which the tax paid on inputs is set off against the output tax liability.
Under the GST regime, all registered businesses are required to maintain detailed records of all their purchases and sales, along with the corresponding taxes paid and collected. This enables the tax authorities to verify the correctness of the tax calculations and ensures that businesses are not claiming more credit than they are entitled to.
To claim ITC, a business must meet certain conditions, such as being registered under GST and having a valid tax invoice or other prescribed document showing the amount of tax paid. Additionally, the tax paid must be for goods or services that are used or intended to be used for the furtherance of business.
ITC can be claimed on all inputs, such as raw materials, capital goods, and services, except for a few specified items such as motor vehicles and goods and services used for personal consumption. The credit can also be claimed for taxes paid on goods and services received from outside India, subject to certain conditions.
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