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CA Final · Indirect Tax Laws · Input Tax Credit

Meridian Group's ISD must distribute common credit in September 2026. One recipient, Unit Z, began operations in April 2026 and had no turnover in its State in the preceding financial year, while the other recipients had turnover. Which turnover period is used for the pro rata calculation?

Because Unit Z had no turnover in the preceding financial year, the relevant period is the last quarter for which turnover details of all recipients are available, before the month in which credit is distributed.

  1. AThe preceding financial year for all recipients, with Z taken as nil turnover
  2. BThe current financial year up to the end of August 2026
  3. CThe last quarter for which turnover details of all recipients are available, before the month of distributionCorrect
  4. DThe month of September 2026 itself

Explanation

The 'relevant period' is the preceding financial year only if the recipients have turnover in that year. If some or all recipients have no turnover in the preceding year, the last quarter for which details of all recipients' turnover are available, previous to the month of distribution, is used. Taking Z as nil would wrongly exclude it.

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