Input tax credit (ITC) refers to the tax paid on inputs that can be claimed back against the output tax liability.
Questions & Step-by-step Solutions
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Q
Q: What is the input tax credit (ITC) in GST?
Solution: Input tax credit (ITC) refers to the tax paid on inputs that can be claimed back against the output tax liability.
Steps: 5
Step 1: Understand that GST stands for Goods and Services Tax, which is a tax on the supply of goods and services.
Step 2: Know that when a business buys goods or services, it pays a tax on those purchases. This is called input tax.
Step 3: Realize that businesses also charge tax when they sell their goods or services. This is called output tax.
Step 4: Input tax credit (ITC) allows businesses to reduce the amount of output tax they need to pay by the amount of input tax they have already paid.
Step 5: For example, if a business pays $10 in input tax and charges $15 in output tax, it can claim back the $10, so it only needs to pay $5 in tax.
