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Input Service Distributor in GST

Input Service Distributor

Introduction

Input Service Distributor (ISD) means an office of the supplier of goods or services or both which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax (CGST), State tax (SGST)/ Union territory tax (UTGST) or integrated tax (IGST) paid on the said services to a supplier of taxable goods or services or both having same PAN as that of the Input Service Distributor (ISD).

It is important to note that the ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods). Companies may have their head office at one place and units at other places which may be registered separately.

The Head Office would be procuring certain services which would be for common utilization of all units across the country. The bills for such expenses would be raised on the Head Office. But the Head Office itself would not be providing any output supply so as to utilize the credit which gets accumulated on account of such input services.

Since the common expenditure is meant for the business of all units, it is but natural that the credit of input services in respect of such common invoices should be apportioned between all the consuming units. ISD mechanism enables such proportionate distribution of credit of input services amongst all the consuming units.

The concept of ISD under GST is a legacy carried over from the Service Tax Regime. 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 Input Service Distributor (ISD). The other locations may be registered separately. Since the services relate to other locations the corresponding credit should be transferred to such locations (having separate registrations) as the output services are being provided there.

For the purposes of distributing the input tax credit, an ISD has to issue an ISD invoice, as prescribed in rule 54(1) of the CGST Rules, 2017, clearly indicating in such invoice that it is issued only for distribution of input tax credit.

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. The input tax credit on account of central tax and State tax or UT tax in respect of recipient located in the same state shall be distributed as central tax and State tax or UT tax respectively.

The input tax credit on account of central tax and State tax or UT tax shall, in respect of a recipient located in a State or Union territory other than that of the ISD, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient. The input tax credit on account of integrated tax shall be distributed as integrated tax.

Let’s take an example to understand this concept.

The Corporate office of ABC Ltd., is at Bangalore, with its business locations of selling and servicing of goods at Bangalore, Chennai, Mumbai and Kolkata. Software license and maintenance is used at all the locations, but invoice for these services (indicating CGST and SGST) are received at Corporate Office. Since the software is used at all the four locations, the input tax credit of entire services cannot be claimed at Bangalore.

The same has to be distributed to all the four locations. For that reason, the Bangalore Corporate office has to act as Input Service Distributor (ISD) to distribute the credit.

If the corporate office of ABC Ltd, an ISD situated in Bangalore receives invoices indicating Rs. 4 lakh of Central tax, Rs.4 lakhs of State tax and Rs. 7 lakh of integrated tax, it can distribute central tax, State tax as well as integrated tax of Rs. 15 lakh as credit of integrated tax amongst its locations at Bangalore, Chennai, Mumbai and Kolkata through an ISD invoice containing the amount of credit distributed.

So in what ratio will the credit be distributed by the ISD?

The credit has to be distributed only to the unit to which the supply is directly attributable to. If input services are attributable to more than one recipient of credit, the distribution shall be in the pro-rata basis of turnover in the State/Union Territory.

For example,

if an Input Service Distributor (ISD) has 4 units across the country. However, if a particular input service pertains exclusively to only one unit and the bill is raised in the name of ISD, the ISD can distribute the credit only to that unit and not to other units. If the input services are common for all units, then it will be distributed according to the ratio of turnover of all the units.

The following illustration will clarify the issue

M/s XYZ Ltd, having its head Office at Mumbai, is registered as ISD. It has three units in different states namely ‘Mumbai’, ‘Jabalpur’ and ‘Delhi’ which are operational in the current year.

M/s XYZ Ltd furnishes the following information for the month of July, 2023 & asks for permission to distribute the below input tax credit to various units.

i. CGST paid on services used only for Mumbai Unit: Rs.300000/-
ii. IGST, CGST & SGST paid on services used for all units: Rs.1200000/-

Total Turnover of the units for the Financial Year 2023-24 are as follows: –

Unit Turnover (Rs.)
Total Turnover of three units = Rs. 10, 00, 00,000
Turnover of Mumbai unit =Rs. 5, 00, 00,000 (50%)
Turnover of Jabalpur unit = Rs. 3, 00, 00,000 (30%)
Turnover of Delhi unit = Rs. 2, 00, 00,000 (20%)

Computation of Input Tax Credit Distributed to various units is as follows:

 

Credit distributed to all units

Particulars

Total credit available Mumbai Jabalpur

Delhi

CGST paid on services used only for Mumbai Unit.

300000/- 300000/-
IGST, CGST & SGST paid on services used in all units Distribution on pro rata basis to all the units which are operational in the current year 1200000/- 600000/- 360000/- 240000/-
Total 1500000/- 900000/- 360000/-

240000/-

Note 1: Credit distributed pro rata basis on the basis of the turnover of all the units is as under: –

a) Unit Mumbai: (50000000/100000000) *1200000 =Rs.600000
b) Unit Jabalpur: (30000000/100000000) *1200000 =Rs.360000
c) Unit Delhi: (20000000/100000000) *1200000 = Rs.240000

An ISD will have to file monthly returns in GSTR-6 within thirteen days after the end of the month and will have to furnish information of all ISD invoices issued. The details in the returns will be made available to the respective recipients in their GSTR 2A. The recipients may include these in its GSTR-2 and take credit.

An ISD shall not be required to file Annual return. 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.

Conclusion:

Thus the concept of Input Service Distributors (ISD) is a facility made available to business having a large share of common expenditure and billing/payment is done from a centralized location. The mechanism is meant to simplify the credit taking process for entities and the facility is meant to strengthen the seamless flow of credit under GST.

 

FAQs > Registration by Input Service Distributor

 

Who are Input Service Distributors?

Input Service Distributor (ISD) under GST includes

  • an office of the supplier of goods and / or services which
  • receives tax invoices issued by the supplier towards receipt of input services and
  • issues a prescribed document for the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above.

How do I obtain a registration as an Input Service Distributor?

The registration for an Input Service Distributor can be applied through the New Registration Application of a normal taxpayer. All you need to do is select Input Service Distributor only under Reason to obtain registration in the Business Details section of PART B of the New Registration Application.

Please refer to screenshot below:

 

 

Can ISD take multiple registrations in a State?

Input Service Distributor (ISD) cannot take multiple registrations in a State.

My place of business is not fixed. What should I mention in the Registration Application?

It is mandatory to provide Principal place of business in the application form, so you need to mention address of the place from where you are conducting your business. In case of any change, you can change the address by filing application for Amendment. However, the address can be changed only within the State.

What document shall I need to upload in my Principal Place of business?

Proof of Principal Place of Business

Sr. No Nature of possession of premises Minimum No. of attachments Proof of Principal Place of Business
1. Own Any 1 attachment Property Tax Receipt OR

Municipal Khata copy OR

Electricity bill copy OR

Legal ownership document

2. Leased Rent/ Lease agreement OR

Rent receipt with NOC (In case of no/expired agreement) AND

any 1 attachment

Rent/ Lease agreement OR

Rent receipt with NOC (In case of no/expired agreement) AND

 

Property Tax Receipt OR

Municipal Khata copy OR

Electricity bill copy OR

Legal ownership document

3. Rented Rent/ Lease agreement OR

Rent receipt with NOC (In case of no/expired agreement) AND

any 1 attachment

Rent/ Lease agreement OR

Rent receipt with NOC (In case of no/expired agreement) AND

 

Property Tax Receipt OR

Municipal Khata copy OR

Electricity bill copy OR

Legal ownership document

4. Consent Consent letter AND any 1 attachment Consent letter AND

 

Property Tax Receipt OR

Municipal Khata copy OR

Electricity bill copy OR

Legal ownership document

5. Shared Consent letter AND any 1 attachment Consent letter AND

 

Property Tax Receipt OR

Municipal Khata copy OR

Electricity bill copy OR

Legal ownership document

6. Others Legal ownership document Legal ownership document

Which place will be my Principal place of business?

The primary location from where you are conducting your business will be your principal place of business.

I have opened my shops at different locations on same PAN. Shall I need to apply separately for Registration?

If the additional places of business are in same state, you do not need to apply for their registration separately. These additional places of business can be shown in the additional places of business tab while filing the registration application.

You also have an option to apply for separate registration for these shops at different locations in the same State.

However, if the additional places of business are in different states, you are mandatorily required to apply for their registration separately for each state.

Can an ISD opt for Composition?

Input Service Distributor (ISD) cannot opt for composition.

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