Input Service Distributor (ISD) under GST or Concept of Input Service Distributor under GST
An ‘Input Service Distributor (ISD)’ is defined in Section 2(61) of CGST Act 2017, “as an office of the supplier of goods or services or both who receives Tax Invoice issued under Section 31 towards the receipt of input services and issues a prescribed document (Invoice) for the purposes of distributing the credit of CGST, SGST, IGST or UTGST paid on the said services to a supplier (A Unit of same company) of taxable goods or services or both having the same Permanent Account Number as that of the said office.
The concept of ISD is a facility being provided to business incurring common expenditure and doing billing/payment from a centralized location. The mechanism is meant to simplify the credit taking process for entities who have common input services and to strengthen the seamless flow of credit under GST.
Key characteristics of Input Service Distributor (ISD) are as follow:
- Such Office (ISD) must receive tax Invoices for inward supply of Services, if such person is receiving only bill of supply (BOS) then such person can’t be called as ISD
- Such Office must have registered as ISD this is apart from regular registration taken as an normal tax payer
- Such office should issue a prescribed document for the purposes of distributing credits indicating the amount of credit distributed
- Supplier (whom Credit is being distributed) must have same PAN as ISD have.
Let’s understand by step by step
Step 1) Inward Supply of Taxable Services to ISD
Step 2) ISD Issue a prescribed document for the purposes of distributing credits
Step 3) Distribution of Credit to Supplier of goods or Services
Here ISD and Supplier should have same PAN
Credit Distribution under GST:
- The Credit available for distribution in a month shall be distributed in the same month
- The amount of Credit distributed can’t exceed ITC available for distribution
- Credit of “Input Services” can be distributed only; Credit of Goods or capital goods can’t be distributed
- Credit of Input Services attributable to more than one unit shall be attributed to all those units on pro-rata basis
- If the amount of Credit distributed by an ISD is reduced later on, the procedure for reducing the credit will be the same as for the reduction in case of credit note.
- Eligible and ineligible credit amount should be separately distributed
- The ITC of IGST, CGST & SGST/UGST must be distributed separately.
Basis of Credit Distribution:
The credit has to be distributed only to that unit to which such inward supply/services is directly attributable. If input services are attributable to more than one recipient, the distribution shall be on the pro-rata basis of turnover in the State or Union Territory as the case may be.
Let’s understand with help of an example:
VC Limited registered as ISD in Delhi and having 3 units in Punjab, Maharashtra & Haryana. These units have made supply in a particular month as per following details:
Punjab: INR 2,00,000
Maharashtra: INR 3,00,000
Haryana: INR 5,00,000
ISD received Input services of INR 1,00,000 on which ISD paid tax of INR 18,000 and these services was commonly used for all three units. In this case credit distribution will be as follows:
Punjab: 3600 (200000/1000000*18000)
Maharashtra: 5400 (300000/1000000*18000)
Haryana: 9000 (500000/1000000*18000)
ISD is require to file their return on monthly basis in form GSTR 6 by 13th of next month
Reverse Charge Liability of ISD:
An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism. This is because that ISD mechanism is only to facilitate distribution of credit of taxes paid. The ISD itself cannot discharge any tax liability like any other person who is liable to pay tax and remits tax into government account. If ISD wants to take supplies which attract reverse charge then in that case ISD has to take separate registration as Normal taxpayer and have to compliance with all the provisions like any other other registered person. (Read All about GST on Educational Services at http://shorturl.at/grD04)
The concept of Input Service Distributor has been taken from existing Service Tax Regime with certain changes. Concept of ISD under GST allows a supplier to take registration only in single state as ISD and generally a place where head office or corporate office is situated applies for ISD to pass on the credit availed on input services at head office or corporate office. By doing so, the overall cost can be reduced as ISD can pass on such credit to all eligible units on whose behalf services availed which otherwise could not utilized.