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

Under Rule 39 of the CGST Rules, 2017, an Input Service Distributor (ISD) receives credit of tax paid on an input service that is attributable to only one recipient of credit. How must this credit be distributed?

Credit on an input service attributable to a single recipient must be distributed only to that recipient. Pro rata turnover-based distribution applies only when the service relates to more than one recipient or to all recipients, and the credit must be distributed in the same month.

  1. APro rata on the basis of turnover among all recipients having the same PAN
  2. BOnly to that recipient to whom the service is attributableCorrect
  3. CEqually among all recipients operational in the current year
  4. DCarried forward to the next month and distributed with the common credit

Explanation

Rule 39(1)(c) provides that credit of tax paid on input services attributable to a recipient of credit is distributed only to that recipient. Turnover-based pro rata distribution applies only where the service is attributable to more than one recipient or to all recipients. Also, credit available in a month must be distributed in the same month, so carrying it forward is wrong.

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