Input Tax Credit (ITC)
Credit for GST already paid on business purchases, which can be set off against GST payable on sales, so tax is effectively paid only on the value added at each stage.
Input tax credit is the mechanism that keeps GST from cascading, tax being charged on tax, as goods and services move through a supply chain. A business that pays GST on its purchases (inputs) can claim credit for that tax and use it to offset the GST it collects on its own sales (output), paying the government only the net difference.
Claiming ITC correctly depends on several conditions: the supplier must have actually filed their own return and paid the tax, the buyer must hold a valid tax invoice, the goods or services must be used for business purposes, and specific restrictions under GST law apply to certain categories, like motor vehicles or personal consumption items, regardless of business use. A significant share of GST disputes and notices trace back to ITC claimed on invoices where the supplier didn't actually deposit the corresponding tax, which is why matching purchase records against GSTR-2B has become a standard monthly compliance step.
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.