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Input Service Distributor (ISD) under GST

Meaning of Input Service Distributor (ISD)

Input Service Distributor is an office of the supplier of goods or services which receives input tax credits on invoices related to input services and distributes such credits to other units in the same business.

  • ISD and the units must have the same PAN.
  • ISD cannot be an office that does any supply of its own but must be one that only collects invoices for services and issues ISD invoices for its distribution.
  • ISD cannot discharge tax liability under reverse charge.
  • Credit only on input services can be distributed and not on input and capital goods.

For example,

The corporate office of ABC Private Ltd. is situated in Noida, having its branches in Noida, Bangalore, Mumbai, and Jaipur. if the legal services are used by all the branches and invoice indicating CGST and SGST is received at Corporate Office (Noida).

Since the service is used for all the units, the input credit of entire services cannot be claimed by Noida and the same should be distributed to all four units. ISD mechanism enables the proportionate distribution of credit of input services amongst all the consuming units. 

Input Service Distributor (ISD)

Compulsory GST registration for ISD

(i) Regular registration will not permit credit distribution. ISD would require obtaining another GST registration even though it may be separately registered. There is no threshold limit for registration for an ISD.

(ii) Registration Procedure of an Input service distributor and the registered person is same under GST law.

GST returns to be filed by ISD

(i) ISD has to furnish the return in FORM GSTR-6 electronically on or before the 13th of next month. It comprises the details of ITC received and distributed by ISD, manner of distribution, and documents issued for distribution of ITC. GSTR-6 can be accessed on the Common Portal after login.

(ii) ISD on the basis of information contained in FORM GSTR-6A may either accept or reject the details on or before the 17th day but not before the 15th day of the next month.

Conditions for distribution of ITC by ISD

ISD may distribute credit only on the following conditions:

(a) Credit should be distributed by issuing an ISD invoice to each recipient of credit.

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

(c) Tax paid on input services used by a particular recipient shall be distributed only to that recipient.

(d) Credit of tax paid on input services used by more than one recipient who is operational is to be distributed to all of them based on the pro-rata basis of turnover of each recipient to aggregate turnover of all such recipients who have used such services.

Content of ISD invoice

The ISD has to issue an invoice for distributing ITC. It should be clearly indicated in the invoice that it is issued only for distribution of ITC. Invoice or credit note issued by input service distributor shall contain the following information-

(a) Name, address, and GSTIN of the ISD

(b) Name, address, and GSTIN of  the recipient to whom the credit is distributed

(c) A consecutive serial number not exceeding sixteen characters

(d) Date of its issue

(e) Amount of the credit distributed

(f) Signature or digital signature of the ISD or his authorized representative

If ISD is an office of a banking company or a financial institution, the invoice is not required to be serially numbered.

How ITC will be distributed?

Credit shall be distributed by ISD on the basis of the following principles-

(i) Credit available for distribution in a month shall be distributed in the same month

(ii) The amount of block credit and eligible credit shall be distributed separately.

(iii) Credit on account of Central tax, State tax, Union territory tax, and integrated tax shall be distributed separately.

(iv) When credit is related to service used in more than one office, credit shall be distributed on the basis of last year turnover of business operational in the current year. if last year turnover is not available, turnover of the previous quarter shall be taken.

(v) The credit of IGST shall be distributed as IGST credit to all the recipients regardless of where they are located.

(vI) The credit of CGST and SGST shall be distributed as IGST credit to all the recipients located outside the state, and as CGST and SGST respectively, in case of distribution of credit to a recipient in the same State.

Credit distribution by ISD in various situations

Illustration 1: PQR Ltd. (ISD ) has a credit of 50 lakhs on services used by three units namely A, B, and C. The turnover of A, B, and C in the preceding financial year, is 20 crores, 25 crores, and 15 crores respectively. The credit of  10 lakhs related to input service received only by C. The input tax credit will be distributed to A, B, C in the following manner-

Description

Amount (Rs)

Total credit available

50 lakhs

Credit on input service used by the only C

10 lakhs

Credit available for distribution

40 lakhs

Credit distributable to A (20 crores / 60 crores * 40 Lakhs)

13.33 lakhs

Credit distributable to B (25 crores /60 crores * 40 Lakhs)

16.67 lakhs

Credit distributable to C (15 crores / 60 crores * 40 Lakhs = 10 lakhs

Credit directly attributable to C = 10 lakhs)

20 Lakhs

Example 2: Distribution of input tax credit by an ISD to its units is shown as under: M/s XYZ Ltd (head office in Delhi) is registered as ISD. It has 3 branches operational in the current year in different states namely ‘Delhi’, ‘Jaipur’ and ‘Gujarat’

Input tax credit details for June 2021:

(i) CGST paid on services used only for Delhi branch - Rs 3 lakh

(ii) IGST, CGST & SGST paid on services used for all branches - Rs 12 lakh

(iii) Total Turnover of the units for the Financial Year 2017-18 are as follows:

Turnover of branches for FY 2020-21;

Delhi - 5 crore,

Jaipur -3 crore

Gujarat 2 crore

Distribution of credit to branches

Delhi


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TaxGyata Team

TaxGyata Team