Input Service Distributor (ISD) under GST
An ISD refers to the one who supplies goods or services or both, which receives tax invoices towards receipts of input services and issues a document for the distribution purpose of taxes paid on the services. ISD mechanism is for distributing credit on common invoices related to input services only, not goods or inputs or capital goods. ISD enables the accurate distribution of credit of input services among all the consuming units. This article contains all details regarding the input service distributor (ISD) under GST.
To get registered separately under the GST, an ISD has to file GSTR REG-1 and there is no threshold limit to get registered as an ISD. The main office and its other units can be registered separately as ISD. To distribute Input Tax Credit, an ISD has to issue invoices clearly stating that such invoice is issued for distribution of ITC only.
For Example, a company has its head office in one place and units at others which may be registered separately under GST. The head office is procuring some services that may be for common utilization of all units across the country. The head office only will raise bills for the services though it does not provide any output supply. Such common expenditure is meant for the business of all units and the credit of input services is to be apportioned among all the consuming units.
Circumstances When ITC is Not Available?
Under the following circumstances, an ISD cannot claim any Income Tax Credit.
- An ISD is not able to distribute ITC to outsourced manufacturers or service providers
- When the ITC is paid on inputs or capital goods, for example, raw material or purchase of machineryÂ
The ISD mechanism is beneficial for the business having a large share of common expenditure and billing. It simplifies the ITC claiming process as the payment is made from a centralized location. ISD ensures a smooth flow of credit under the GST regime.
ITC Distribution Process Under ISD Mechanism
- Under sections 20 and 39 of CGST rules 2017, an ISD has to distribute the credit of taxes as they are being issued or prescribed. For example, distribute central tax as central tax, IGST as IGST
- ISD can distribute the credit entitled to the following conditions
- The amount of credit distributed cannot exceed the amount of credit available for distribution
- The credit of tax paid on input services attributable to a recipient of credit has to be distributed to that recipient only
- The credit of tax paid for input services attributable to more than one recipient is to be distributed on a pro-rata basis among all the recipients in a relevant period
- The tax credit on input service attributable to all recipients of credit has to be distributed among such recipients on a pro-rata basis
- The tax credit can be distributed to the recipients of credit against a document containing details prescribed in sub-rule (1) & 1A of rule 54
Here the recipient of credit refers to the supplier of goods or services or both having the same PAN as that of the ISD.
As per rule 65 of the GST 2017, an ISD shall, based on the 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 details of tax invoices on which credit is received. The details mentioned in GSTR 6 have to be made available to the recipient of credit in part B of form GSTR 2A.
To get registered as an ISD and secure a seamless Input Tax Credit, reach out to TaxDunia. Let the professionals help you claim the credit and meet other legal compliances as an Input Service Distributor.
