Input tax credit 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?
Solution: Input tax credit refers to the tax paid on inputs that can be claimed back against the output tax liability.
Steps: 4
Step 1: Understand that businesses often pay tax when they buy goods or services. This is called input tax.
Step 2: When these businesses sell their own goods or services, they charge tax to their customers. This is called output tax.
Step 3: Input tax credit allows businesses to subtract the tax they paid on their purchases (input tax) from the tax they collect from their customers (output tax).
Step 4: By claiming the input tax credit, businesses can reduce the amount of tax they need to pay to the government.
