Under GST, an input service distributor is a type of taxpayer who must distribute the GST input tax credits associated with its GSTIN to its divisions or units that have distinct GSTINs but are registered under the same PAN.
Who is an Input service distributor (ISD) under GST?
A taxpayer who receives invoices for services utilised by its branches is known as an Input Service Distributor (ISD). By sending out ISD invoices, it determines the tax paid, known as the Input Tax Credit (ITC), to these branches proportionately. Although the branches’ GSTINs may differ, they must share the same PAN as the ISD.
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Situations where ISD is not applicable
In the following situations, ISD is unable to distribute the input tax credit:
- where capital items for ITC payments. For example, the purchase of machinery and raw materials.
- Manufacturers and service providers that are outsourced are not eligible to get ITC.
Purpose of registering as ISD
The motive behind ISD is that businesses with a significant portion of similar expenses can use the facility, and invoicing and payment can be handled centrally. The facility will improve the seamless movement of credit under GST, and the mechanism is intended to make the credit-taking process for firms simpler.
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Insight on ISD under Earlier regime and GST regime
Point of
|
Earlier Regime |
GST Regime |
| 1. Who can be an Input service distributor? | An office of the manufacturer or producer of final products or provider of output service | An office of the supplier of goods and/or services |
| 2. Document based on which credit can be distributed | Receives invoices issued under rule 4A of Service Tax Rules, 1994 towards the purchase of input services | Receives tax invoices issued by supplier towards receipt of input services |
| 3. How to distribute credit? | By issuing invoice, bill or challan for the purposes of distributing to such manufacturer or producer or provider. | By issuing an ISD invoice for the purposes of distributing to a supplier of taxable goods and/or services having the same PAN as that of the office referred to above |
| 4. Type of tax credit that can be distributed | The credit of service tax paid on the said services | The credit of CGST (or SGST) and/or IGST paid on the said services |
| 5. To whom can it be distributed? | To its units and outsourced manufacturers | To supplier having the same PAN. i.e credit cannot be distributed to outsourced manufacturers or service providers. |
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Accordingly, credit distribution is limited to the office with the same PAN when examining the highlighted variations between the two regimes. The move of the taxable event from manufacture to supply may be the cause. Upon using the applicable input tax credit, ISD would ultimately pay the tax burden that would have arisen at the time of supply.
Conditions to be fulfilled by ISD
- Registration: In addition to being registered under GST as a regular taxpayer, input service distributors are required to register as “ISDs.” This taxpayer must designate themselves as an ISD under serial number 14 on the REG-01 form. Only after this announcement will they be able to provide the recipients their credit.
- Invoicing: By providing an ISD invoice, ISD is able to send the tax credit amount to beneficiaries as previously mentioned.
- Returns: By the 13th of the next month, the ISD must file the GSTR-6, and the amount of tax credit distributed cannot be greater than the amount of tax credit available with the ISD as of the end of the relevant month. The GSTR-2B return provides the ISD with the ITC information.
The tax credit recipient can view the tax credit as distributed by ISD in GSTR-6A, which is automatically filled up based on the supplier’s return. By declaring it in GSTR-3B, the recipient branch can then assert the same. Annual returns on form GSTR-9 are not required to be filed by an ISD.
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Distribution of Input Tax Credit
- The Input Tax Credit (ITC) that is available for distribution in a particular month must be distributed that same month, and information about it must be included on the GSTR-6 form.
- ISD will also disburse the receivers of the tax credit paid under the reverse charge method under sections 9(3) and 9(4).
- Only that recipient may use the tax credit that is offered against any particular input services that they have used totally; other recipients are not eligible to get this credit.
- All of the recipients who are in operation during the year will receive a proportionate share of the tax credit applicable against the input services used frequently by multiple ISD recipients in the following ratio:
- Turnover in a State or Union territory of the beneficiary during the applicable period divided by the total turnover of all such beneficiaries is the ratio.
- All ISD beneficiaries that are in operation during the year will receive a proportionate share of the tax credit available against the input services used by all of them in the following ratio:
- Turnover in a State or Union territory of the beneficiary during the applicable period divided by the total turnover of all such beneficiaries is the ratio.
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Recovery procedure for wrongful distribution of credit by ISD
According to the GST Act, an input service distributor will be considered to have distributed tax credits inappropriately if they do any of the following:
- Any recipient who receives more credit than what is available for distribution
- distributed in excess of what a provider is entitled to and will be recouped from such recipient or recipients, along with interest, in an unsuitable ratio. The “Demand and Recovery” rules will be applicable to carry out this recovery.
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