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CMA Final · Indirect Tax Laws and Practice · Input Tax Credit

An ISD distributed credit to recipients A and B in the ratio 40:60 on an original invoice. The supplier later issues a credit note to the ISD reducing the credit by ₹50,000. How is the reduction handled under Rule 39?

The reduction is apportioned in the original distribution ratio of 40:60, so recipient A bears ₹20,000 and recipient B bears ₹30,000. The rule links the reversal to the ratio used for the original invoice rather than to new turnover figures.

  1. AReduced entirely from recipient B, as the larger recipient
  2. BApportioned equally at ₹25,000 each
  3. CApportioned in the ratio 40:60, i.e. ₹20,000 to A and ₹30,000 to BCorrect
  4. DApportioned on the basis of current-month turnover of A and B

Explanation

Rule 39(1)(n) says a reduction due to a supplier's credit note is apportioned to each recipient in the same ratio in which credit in the original invoice was distributed. So 40% of 50,000 = 20,000 for A and 60% = 30,000 for B. Using fresh turnover or equal shares ignores this rule.

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