Ad free CAclubindia and daily updates on your mobile. Subscribe Now!

ITC related

ankur Sharma (15 Points)

30 August 2020

What is ITC?

Reply
Follow
Share

3 Replies

Sagar Patel (Tax and Business Consultant) (11611 Points)
Replied 31 August 2020

Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale. In other words, businesses can reduce their tax liability by claiming credit to the extent of GST paid on purchases.

When a trader sells a good to consumers he collects GST based on the HSN of the goods sold and the place of destination.

Let us assume that the MRP of the good sold is INR 1000 and the rate of applicable GST is 18%. The consumer will, therefore, pay a total of INR 1180 for the good which includes a GST of INR 180. Without ITC, the trader will have to pay INR 180 to the government. With input tax credit or ITC, the trader can reduce the total tax that it will have to pay the government. This is how it works.

Let us assume that the cost/purchase price of the good in the hands of the trader is INR 825 including INR 125 as GST. The trader can claim INR 125 as input tax credit and reduce his original tax liability of INR 180 by this amount. In other words, the trader will need to pay only INR 55 (INR 180 – INR 125) to the government.

Upgrade to CAclubindia Pro. Subscribe Now!

sabyasachi mukherjee (27515 Points)
Replied 31 August 2020

Input tax credit is applicable on the following
Sec 2(62) of CGST ACT DEFINES INPUT TAX AS FOLLOWS :
A . IN RELATION TO A REGISTERED PERSON MEANS THE CENTRAL TAX AND STATE TAX , INTEGRATED OR UNION TERRITORY TAX CHARGED ON ANY SUPPLY OF GOODS AND SERVICES OR BOTH MADE TO HIM AND INCLUDES THE FOLLOWING.