Microlesson · 5-min read

Treatment of Taxes (ITC) in Cost

# Points for Taxation (ITC) in Cost Sheet

When tax (e.g., GST) is paid on purchases, its treatment depends on whether it is eligible for Input Tax Credit (ITC) / refund.

## Three Scenarios

Scenario	If full tax is eligible for ITC (refund)	If partial tax is eligible for ITC	If NO tax is eligible for ITC
Tax paid	100	100	100
Refund (ITC)	(100)	(40)	0
Tax to be included in cost	0	60	100

## Rule of Thumb

Worked example

### Example 1

Example: Material purchased ₹1,00,000 with GST ₹18,000. Of this GST, only 60% is eligible for ITC.

Including the full GST in cost when ITC is fully available.
Excluding GST entirely when no ITC is available — the full tax must be added to cost.
Forgetting to apply the partial ITC adjustment proportionately.

Reference:

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