Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.
Here’s how-
When you buy a product/service from a registered dealer you pay taxes on the purchase. On selling, you collect the tax. You adjust the taxes paid at the time of purchase with the amount of output tax (tax on sales) and balance liability of tax (tax on sales minus tax on purchase) has to be paid to the government. This mechanism is called utilization of input tax credit.
For example- you are a manufacturer:
• Tax payable on output (FINAL PRODUCT) is Rs 1000
• Tax paid on input (PURCHASES) is Rs 700
• You can claim INPUT CREDIT of Rs 700 and you only need to deposit Rs 300 in taxes.
