Concept of Input Service Distributor (ISD) under GST
Meaning of Input Service Distributor
As per section 2(61) of the CGST Act 2017, an “Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.
Precisely, an input service distributor is one that distributes the credit of CGST, SGST and IGST in the manner explained as per the provisions of CGST Act and Rules, to its branches or offices at different locations and having same PAN based different GSTINs, on the basis an ISD invoice issued as per Rule 54(1) of the CGST Rules.
It is to be noted that an ISD can distribute only the credit of GST on input services received by it.
Need of Input Service Distributor
The ISD mechanism has been continued under GST for the businesses with substantial expenditure of common in nature and where the billing or payment is done from a centralized location.
This mechanism has simplified process for availment, distribution and utilisation of credit by the entities and has ensured seamless flow of credit under GST.
Registration under GST by ISD
An input service distributor is required to be registered under GST, irrespective of the aggregate turnover in a state or union territory. Clause (viii) of section 24 mandates an input service distributor to take registration under GST, for which such ISD has to make a separate application for registration under form GST REG – 01.
Conditions for distributing credit
The basic conditions for distribution of credit by an input service distributor and the related restrictions are explained under section 20 of the CGST Act.
- The amount of credit distributed by an ISD should not exceed the amount of credit available for distribution;
- The credit of GST paid on input services that is directly attributable to any one or more recipients, should be allocated to that recipient only, i.e., GST paid on the specific input services received by the selected branches only, should be distributed to those branches only;
- Credit can be distributed to such recipients/branches having the same PAN based GSTIN
Conditions for availing credit by ISD
The documentary evidences and conditions for claiming input tax credit by an input service distributor are same as any other registered person.
- Tax Invoice must be issued by the supplier of services with all the required details and format of tax invoice and the invoice issued where such input services have been received that attract reverse charge under section 9(3) or 9(4); or
- An Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor as per Rule 54(1)
Manner of distribution of credit by ISD
- The input tax credit available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR- 6 by the input service distributor;
- The eligible and ineligible input tax credit (computed as per section 17(5)) should be separately distributed by ISD;
- Credit of IGST will be distributed as credit of IGST only to all recipients;
- Where the recipient is located in the same state as ISD, credit of CGST/SGST/UTGST will be distributed as the respective credit under the corresponding heads;
- Where the recipient is located in a state different from the state of ISD, credit of CGST/SGST/UTGST will be distributed as credit of IGST; for this purpose, the amount of CGST, SGST and UTGST credit shall be aggregated and then will distributed as IGST credit;
- The GST credit attributable to different branches/recipients will be distributed on pro rata basis on the basis of turnover in a state or union territory during the relevant period
Relevant Period for this purpose has been defined in the explanation to section 20, as the preceding financial year, where all the recipients/branches have turnover in that year; where any of the recipients do not have turnover in the preceding financial year, the relevant period will be the last quarter for which the turnover of all such recipients is available, previous to the month in which credit is to be distributed.
- The total input tax credit to be distributed will be calculated by applying the below formula –
C1 = (t1÷T) × C
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of one recipient during the relevant period
“T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable
Filing of Return by ISD
Input Service Distributor is required to file the monthly return under GSTR-6 within 13 days after the end of respective month. For the period of July 2017 – June 2018 the last date for filling GSTR 6 is 31st July 2018
Content of ISD Invoice under Rule 54 (1)
An invoice issued by input service distributor should contain the following details :-
- Name, address and GSTIN 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 symbolized as- “-“, “/” respectively, and any combination thereof, unique for a financial year;
- Date of its issue;
- Name, address and GSTIN of the recipient to whom the credit is distributed;
- Amount of the credit distributed; and
- Signature or digital signature of the Input Service Distributor or his authorized representative