Concept of Input Service Distributor As per Section 2 (61) “Input Service Distributor(ISD)” means
- An office of the supplier of goods or services or both
- It receives tax invoices issued under section 31 towards the receipt of input services.
- It issues a prescribed document for the purposes of distributing the credit of CGST,SGST,IGST or UTGST paid on the said services.
- Such document is issued to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.Further,
- Companies may have their head office at one place and units at other places which may be registered separately.
- Given that services are intangible, it is not practical to trace every service to the ultimate recipient of the service, as is distinguishable in case of goods, justifying the need for a distributor to services.
- Generally, the head office of the person, or the corporate office, by whatever name called, would be the location where the services would be billed.
- However, there is no implication by law that an ISD must be the head office.
- Further, the law also places no limit on the number of offices that can be registered as ISD. Therefore, a single company may choose to have multiple regional offices based on its business requirements.
- Care should be taken to ensure that an inter-branch supply of services should not be misinterpreted as a distribution by ISD.
- Please recollect that ISD cannot be an office that does any supply of its own but must be one that merely collects invoice for services and issues prescribed document for its distribution. .
Distribution of Credit To distribute the credit of input services, the ISD would be required to follow the manner prescribed by the rules, including :
- Issue of an ISD invoice to each recipient of credit on every distribution.
- Recipients of credit are those taxable persons to whom it is attributable (whether or not they are registered), being persons having the same PAN (as issued under the Income Tax Law) as that of the ISD.
- The credit of integrated tax should be distributed as integrated tax irrespective of the location of the ISD, and so also:
- Where the ISD is located in a State other than that of the recipient of credit, the aggregate of Central tax, State tax and Union territory tax, as integrated tax.
- Where the ISD is located in the same State as that of the recipient, the Central tax and State tax (or Union territory tax) should be distributed as the Central tax and State tax (or Union territory tax), respectively.
- Each type of tax must be distributed through a separate ISD invoice. However, there is no requirement to issue ISD invoices at an invoice-level (received from the supplier of the service).
- Credit distributed should not exceed the credit available for distribution.
- Tax paid on input services used by a particular location (registered as supplier), is to be distributed only to that location.
- Credit of tax paid on input service used by more than one location who are operational is to be distributed to all of them based on the pro rata basis of turnover of each location in a State to aggregate turnover of all such locations who have used such services.
- The period to be considered for computation is the previous financial year of that location. If it does not have any turnover in the previous financial year, then previous quarter of the month to which the credit is being distributed.
Registration as ISD
Section 24 of the CGST Act (read with rule 8 of CGST Rules, 2017), requires an office of the supplier which intends to act as Input Service Distributor (ISD), to separately obtain registration as ISD. In other words, a registration number of an establishment as an ISD is different from the registration number of such establishment u/s 22 of the Act.
- An ISD will have to compulsorily take a separate registration as such ISD and apply for the same in form GST REG-1.
- There is no threshold limit for registration for an ISD.
- The other locations may be registered separately.
Registration as ISD
- Section 24 of the CGST Act (read with rule 8 of CGST Rules, 2017), requires an office of the supplier Prescribed documents on ISD
- The content of tax invoice to be issued by ISD are given below:
- name, address and Goods and Services Tax Identification Number of the Input Service Distributor.
- a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters- hyphen or dash and slash symbolised as- “-”, “/” respectively, and any combination thereof, unique for a financial year (this condition is exempted in case of banking company and financial institutions).
- date of its issue; name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed and amount of the credit distributed.
- signature or digital signature of the Input Service Distributor or his authorised representative.
- Invoice to indicate that it is issued only for distribution of input tax credit.
- 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. For this purpose, the ISD shall also be required to issue an “ISD credit note” to other establishments, in the same month in which the credit note issued to ISD by any supplier is included in GSTR-6 return of the ISD. 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, such amount is added to the output tax liability of the recipient.
- The input tax credit available for distribution in a month shall be distributed in the same month and details furnished in FORM GSTR-6.
- Further, an ISD shall separately distribute both the amount of ineligible and eligible input tax credit.
- An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism. This is because the ISD mechanism is only to facilitate distribution of credit of taxes paid. The ISD itself cannot discharge any tax liability (as person liable to pay tax) and remit tax to government account.
- If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as Normal taxpayer.(Image source: https://cleartax.in/s/input-service-distributor-under-gst#purpose)
How tax to be Distribution of Input Credit
- An ISD shall distribute the eligible ITC in accordance with Rule 39.
- The credit of IGST should always be distributed as IGST credit to all the units to which the service is attributable, regardless of where they are located.
- Credit of CGST/SGST can be distributed as CGST/SGST in case of same state and IGST in case of different state.
- The credits should be distributed only to those units to which the service is attributable on a pro rata basis in the ratio of their respective ‘Turnover in State’ to the aggregate of the only those units ‘Turnover in state’.
- Further, no differentiation is made to whether the unit is registered or not, and therefore, credit attributable to the unregistered unit is distributed to that unit although it is not registered, which implies, it is a loss of credit.
- The ‘turnover in State’ is arrived at a value for the ‘relevant period’.
Returns for ISD
- As per Rule 65 of the CGST Rules 2017, every ISD shall, on the basis of details contained in FORM GSTR-6A, and where required, after adding, correcting or deleting the details, furnish electronically the return in FORM GSTR-6, containing the details of tax invoices on which credit has been received and those issued under section 20.
- The details of invoices furnished by an ISD in his return in FORM GSTR-6 shall be made available to the recipient of credit in Part B of FORM GSTR 2A electronically through the common portal and the said recipient may include the same in FORM GSTR-2.
- Following formats will be relevant for compiling information required for the purpose of making computation and filing of ISD return. – Summary of Total Input Tax Credit available for distribution during month (including debit notes issued by the supplier to ISD).