Input Tax Credit means reducing the taxes paid on inputs from taxes paid on output. When any supply of services or goods is supply to a taxable person, the GST charge is known as Input Tax.
The concept is not entirely new as it already existed under the pre-GST indirect taxes regime (service tax, VAT and excise duty). Now its scope has been wide under GST.
Earlier, it was not possible to claim ITC for Central Sales Tax, Entry Tax, Luxury Tax and other taxes. In addition, manufacturers and service providers could not claim the Central Excise duty.
During the pre-GST era, cross-credit of VAT against service tax/excise or vice versa was not allow. But under GST, since these taxes will be subsume into one tax, there will not be the restriction of setting off this input tax credit.
The conditions to claim Input Tax Credit under GST is a very critical activity for every business to settle the tax liability.
Input Tax Credit can’t be apply to all types of inputs, each state or a country can have different rules and regulations. ITC is also viable to a dealer who has purchased goods for resale.
Tax Credit is the backbone of GST and for registered persons is a major matter of concern. This is majorly in line with the pre-GST regime. These rules are quite stringent and particular in their approach.