ITC, a taxation system in which the government provides relief on tax on goods and services.
On 1st July 2017 Indian government took a revolutionary step in implementing single tax system.
Many still may not be aware of the benefits but it has really improved ranking in ease of doing index by World Bank.
Long queues of trucks on state borders have vanished now.
The complete online system has also brought transparency.
Tracking double taxation has become easy, in which ITC comes into play.
ITC means Input Tax Credit
And what it does?
It reduces the taxes paid on inputs from taxes to be paid on output.
If I buy the raw material worth Rs 200, I will pay 24 @ 12% GST on it as tax.
Now after making product and cutting my profit if I sell it @ Rs 250 and now GST @ 18% on that product
So my product value will become Rs295 in which I will pay Rs 45 as tax.
But, here comes ITC.
And with this, I can say that I have already paid Rs24 as tax while purchasing raw material
I can reduce that amount claiming under ITC and will pay
45-24 = 21
Rs 21 as tax after selling my product.
however, certain conditions are there as follow
Should be registered as a taxable person.
Can be claimed for business purpose only.
Documents like Tax Invoice, debit note, Supplementary Invoice are required while claiming.
All GST returns such as GST-1, 2,3, 6, and 7 needs to be filed.