"it is" if it has to be contracted then it is always "it's", the apostophe shows that something has been removed, ie the "i". A lot, if not all, contractions follow this method. eg. "do not" becomes "don't", "is not" becomes "isn't" and lots more. In formal writing I was taught you should NOT use contractions. It is only for speech or the recording of speech in a story etc.
You have to think of it as a pronoun that gets special treatment, and not as an ordinary noun with an apostrophe and S tacked on at the end. We don't say he's book or we's neighborhood, either.
Clearly, this is a difficult distinction to master, however, since many, many native speakers make the wrong choice. MANY native speakers. Every - single - day. I saw "it's" used incorrectly on m