Sn-doped In2O3 or ITO is the most widely used transparent conducting oxide. We use first-principles calculations to investigate the limitations to its transparency due to free-carrier absorption mediated by phonons or charged defects. We find that the main contribution to the phonon-assisted indirect absorption is due to emission (as opposed to absorption) of phonons, which explains why the process is relatively insensitive to temperature. The wavelength dependence of this indirect absorption process can be described by a power law. Indirect absorption mediated by charged defects or impurities is also unavoidable since doping is required to obtain conductivity. At high carrier concentrations, screening by the free carriers becomes important. We find that charged-impurity-assisted absorption becomes larger than phonon-assisted absorption for impurity concentrations above 1020 cm–3. The differences in the photon-energy dependence of the two processes can be explained by band structure effects.