Abstract
The mechanism of input tax credit (ITC) under the Goods and Services Tax (GST) system is an essential aspect for businesses to understand in order to effectively manage their tax liabilities. ITC is a mechanism under GST where businesses can claim credit for the taxes paid on their purchases against the taxes they are liable to pay on their sales. This ensures that taxes are levied only on the value addition at each stage of the supply chain, thereby avoiding cascading taxation.
This study provides an overview of a critical study aimed at examining the intricacies, challenges, and impacts of the input tax credit mechanism in India. The study highlights the challenges and limitations associated with the implementation of input tax credit in India. These include complexities in compliance, technical glitches in the system, and instances of tax evasion. Moreover, the study examines disparities in interpretation and enforcement across different states, leading to uncertainties and compliance issues for businesses.
Understanding the mechanism of input tax credit is crucial for businesses to optimize their tax liabilities and comply with GST regulations effectively. Proper documentation, adherence to conditions, and timely reconciliation of invoices are essential for claiming and maintaining input tax credit under GST.
The GST laws provide a comprehensive framework for claiming input tax credit on eligible inputs, input services, and capital goods. However, complexities in compliance and interpretation pose challenges for businesses. The process of availing input tax credit involves timely filing of returns, matching of invoices, and adherence to prescribed conditions. Non-compliance with procedural requirements can lead to denial or reversal of credit. Input tax credit facilitates cost reduction, improves cash flow, and enhances competitiveness for businesses. The input tax credit mechanism under GST plays a pivotal role in promoting tax compliance, reducing tax cascading, and fostering economic growth. However, addressing procedural complexities and ensuring effective implementation are crucial for maximizing the benefits of input tax credit for businesses and the economy.
Key Words: Taxation, Input Tax Credit, Goods and Services Tax.