Rule 39. Procedure for distribution of input tax credit by Input Service Distributor.-

1[(1) An Input Service Distributor shall distribute input tax credit in the manner and subject to the following conditions, namely:–

(a) the input  tax  credit  available  for  distribution  in  a  month  shall  be  distributed  in  the same  month  and  the  details  thereof  shall  be  furnished  in FORM  GSTR-6 in accordance with the provisions of Chapter VIII of these rules;

(b) the  amount  of  the  credit  distributed  shall  not  exceed  the  amount  of  credit  available for distribution;

(c ) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;

(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall  be pro rata on the basis  of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period,to the aggregate  of the turnover of all such recipients to whom such input service is attributable and which are operational in the  current year, during the said relevant period;

(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which  are operational in the current year, during the said relevant period;

(f) the  input  tax  credit  that  is  required  to  be  distributed  in  accordance  with  the provisions of clause  (d) and (e) 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 recipients 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) x C

where,

"C" is the amount of credit to be distributed,

"t1"  is  the  turnover,  as  referred  to  in clause  (d)  and  (e),of  person  R1during  the relevant period, and
 
"T" is the aggregate of the turnover, during the relevant period, of all recipients to whom  the  input  service  is  attributable  in  accordance  with  the  provisions  of clause (d) and (e);

(g) the  Input  Service  Distributor  shall,  in  accordance  with  the  provisions  of  clause  (d) and  (e),  separately  distribute  the  amount  of  ineligible  input  tax  credit  (ineligible under the provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible input tax credit;

(h) the  input  tax  credit  on  account  of  central  tax,  State  tax,  Union  territory  tax  and integrated  tax  shall  be  distributed  separately  in  accordance  with  the  provisions  of clause (d) and (e);

(i) the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient;

(j) the  input tax  credit  on  account  of  central  tax  and  State  tax  or  Union  territory  tax shall–

(i) in respect of a recipient  located in the  same  State  or Union territory in  which the Input Service Distributor is located, be distributed as input tax credit of central tax and State tax or Union territory tax respectively;

(ii) in respect of a recipient located in a State or Union territory other than that of the Input Service Distributor, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central  tax  and  State  tax  or  Union  territory  tax  that  qualifies  for  distribution  to such recipient as referred to in clause (d) and (e);

(k) the  Input  Service  Distributor  shall  issue  an  Input  Service Distributor  invoice,  as provided in sub-rule (1) of rule 54, clearly indicating in such invoice that it is issued only for distribution of input tax credit;

(l) the  Input  Service  Distributor  shall  issue  an  Input  Service  Distributor  credit  note,  as provided in sub-rule (1) of rule 54, for reduction of credit in case the input tax credit already distributed gets reduced for any reason;

(m) any additional amount of input tax credit on account of issuance of a debit note to an Input  Service  Distributor  by  the  supplier  shall  be  distributed  in  the  manner  and subject to the conditions specified in clauses (a) to (j) and the amount attributable to any recipient shall be calculated in the manner provided in clause (f) and such credit shall be distributed in the month in which the debit note  is included in the return in FORM GSTR-6;

(n) any input tax credit required to be reduced on account of issuance of a credit note to the Input Service Distributor by the supplier shall be apportioned to each recipient in the  same  ratio  in which  the  input  tax  credit  contained  in  the  original  invoice  was distributed in terms of clause (f), and the amount so apportioned shall be-

(i) reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR-6; or

(ii)  added  to  the  output  tax  liability  of  the  recipient   where  the  amount  so apportioned  is  in  the  negative  by  virtue  of  the  amount  of  credit  under  distribution being less than the amount to be adjusted.]

2[(1A)  For  the  distribution  of  credit  in  respect  of  input  services,  attributable  to  one  or  more distinct  persons,  subject  to  levy  of  tax  under  sub-section  (3)  or  (4)  of  section  9,  a  registered person,  having  the  same  PAN  and  State  code  as  an  Input  Service  Distributor,  may  issue  an invoice or, as the case  may be, a credit or debit note as per the provisions of sub-rule(1A) of rule  54 to transfer the  credit  of such common input  services to the  Input Service  Distributor, and  such  credit  shall  be  distributed  by  the  said  Input  Service  Distributor  in  the  manner  as provided in sub-rule (1).]

(2) If the amount of input tax credit distributed by an Input Service Distributor is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the Input Service Distributor, the process specified in 1[clause (n)] of sub-rule (1) shall apply, mutatis mutandis, for reduction of credit.

(3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the Input Service Distributor credit note specified in 1[clause (j)] of sub-rule (1), issue an Input Service Distributor invoice to the recipient entitled to such credit and include the Input Service Distributor credit note and the Input Service Distributor invoice in the return in FORM GSTR-6 for the month in which such credit note and invoice was issued.

1[Explanation. — For the purpose of this rule, –

(i) the term "relevant period" shall be—

(a) if  the  recipients  of  credit  have  turnover  in  their  States  or  Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or

(b) if some or all recipients of the credit do not have any turnover in their States  or  Union  territories  in  the  financial  year  preceding  the  year during  which  the  credit  is  to  be  distributed,  the  last  quarter  for which  details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;

(ii) the expression "recipient of credit" means the supplier of goods or services or  both  having  the  same  Permanent  Account  Number  as  that  of  the  Input  Service Distributor;

(iii) the term "turnover", in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entries 84 and 92A of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.]

1. Inserted vide Notification No. 12/2024 - CT dated 10.07.2024 (w.e.f. 1st day of April, 2025, appointed vide Notification No. 09/2025-CT, dated 11.02.2025).

2. Substituted vide Notification No. 12/2024 - CT dated 10.07.2024 (w.e.f. 1st day of April, 2025, appointed vide Notification No. 09/2025-CT, dated 11.02.2025).