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

Under the ISD distribution rule, the credit of tax paid on an input service that is attributable to only one recipient of credit is to be handled in which manner?

Credit on an input service attributable to a single recipient must be distributed only to that recipient. Turnover-based pro rata distribution applies only when the service is attributable to more than one recipient or to all recipients, so equal or retained distribution is wrong.

  1. ADistributed only to that recipientCorrect
  2. BDistributed pro rata among all recipients on the basis of turnover
  3. CRetained by the ISD and used against its own output tax
  4. DDistributed equally among all recipients having the same PAN

Explanation

Clause (c) of the ISD distribution rule provides that credit of tax on input services attributable to a recipient is distributed only to that recipient. Pro rata turnover-based distribution applies only where the service is attributable to more than one recipient or to all recipients.

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