Make GST ITC rules for distribution of credit by ISD to Single recipient directly : ICAI – GST Rules Issue 20

By | May 10, 2017
(Last Updated On: May 10, 2017)

 Distribution of input tax credit by Input Service Distributor

Rule 4(d) of draft GST ITC Rules provides for the manner of distribution of ITC by an Input Service Distributor.

The input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) of sub-section (2) of Section 20 to one of the recipients ‘R1’, whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipient(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, “C1”, to be calculated by applying the following formula:

C1 = (t1÷T) × C


“C” is the amount of credit to be distributed,

“t1” is the turnover, as referred to in Section 20, of person R1 during the relevant period, and

“T” is the aggregate of the turnover of all recipients during the relevant period


• The formula so provided appears to be very cumbersome as compared to the formula provided under existing Rule 7 of CENVAT Credit Rules, 2004 for distribution of credit by Input Service Distributors.

Rule 4(1)(d) provides for method of distribution of credit in case of common credits which are attributable to more than one recipient. However this rule does not provide for distribution of credit which is attributable directly to a single recipient and does not refer to Section 20(2)(c) which contains the provision in such cases. Due to this, directly attributable credits will be left to be distributed.


• It is suggested that the present formula of distribution of credit by Input Service Distributors provided under Rule: 7 of CENVAT Credit Rules 2004 be imported to make the pro-rata distribution rate simpler and easier to understand.

• Further, it is suggested that, to enable the distribution of directly attributable credits, a separate sub rule be inserted before rule 4(1)(d) which will provide for the method of such direct distribution.

• Further, there be inserted another sub rule to exclude credits directly distributed from the total credits so that the common credits may be identified, which would ultimately be referred in rule 4(1)(d).

• Alternatively, the rule may be redrafted as follows:

a) If assesse Maintain Separate set of Books of accounts, eligible credit for the taxable invoices be taken.

b) Where separate set of books of accounts are not maintained for Taxable and Non Taxable activities, eligible credit to be calculated in the following way

ITC eligible = Total ITC × (Taxable Turnover / Total Turnover)

Source ICAI Suggestions on GST Rules Submitted to Govt of India

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