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CA Final · Indirect Tax Laws · Input Tax Credit

Gaurav Services Ltd, an ISD, will distribute credit in October 2026 (financial year 2026-27) to three recipients with the same PAN. Recipients X and Y had turnover in the financial year 2025-26. Recipient Z commenced operations in July 2026 and had no turnover in 2025-26. Turnover details of all three recipients are available up to September 2026. What is the 'relevant period' for the pro rata distribution?

The relevant period is July to September 2026. Since recipient Z had no turnover in the preceding financial year, the rule falls back to the last quarter before the distribution month for which turnover details of all recipients are available.

  1. AThe quarter July to September 2026Correct
  2. BThe financial year 2025-26
  3. CThe month of October 2026
  4. DThe quarter April to June 2026

Explanation

Under the Explanation to rule 39, the preceding financial year is the relevant period only if all recipients had turnover in it. Z had none, so the relevant period is the last quarter, previous to the month of distribution, for which turnover details of all recipients are available. That is July to September 2026. April to June 2026 is wrong because Z had no turnover then.

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