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Input Service Distributor i.e ISD under GST

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Relevance/Importance of ISD in GST

INPUT SERVICE DISTRIBUTOR UNDER GST

Input Service Distributor has been defined Section 2(61) of CGST ACT. The main objective of Input Service Distributor (ISD) is to receive and distribute the Input Credit to the eligible offices / departments / branches / units

Key Highlights for Input Service Distributor:-

  • Registration is mandatory for ISD
  • Any Office of the supplier can be ISD i.e any head office, registered office, corporate office, administrative office, branch office, regional/divisional/zonal office, depot, plant etc.
  • Also, a service provider can have more than one ISD registrations.
  • Distribution of credit shall be pro rata on the basis of the turnover, if more than one

Recipient

Distribution of Tax Credit By ISD

1.

Credit of IGST can be distributed as         >>>>>>>>>>>>          IGST to every Recipient having same in PAN

2.

IF ISD AND RECIPIENT ARE IN SAME STATE

  • Credit of CGST/SGST Can be distributed as tax credit of CGST/SGST respectively to every recipient having same PAN

IF ISD AND RECIPIENT ARE NOT IN SAME STATE

Credit of CGST/SGST Can be distributed as tax credit of IGST to every recipient having same PAN

Definition- Section 2(61) of CGST ACT-

                        “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;

Compulsory Registration

Section 24(viii) CGST ACT

Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,––

(viii) Input Service Distributor, whether or not separately registered under this Act;

Section 20 of CGST ACT:-

(1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.

(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:––

(a) the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;

(b) the amount of the credit distributed shall not exceed the amount of credit available for distribution;

(c) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;

(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;

(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.

Explanation.––For the purposes of this section,––

(a) the “relevant period” shall be––

(i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or

(ii) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;

(b) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;

(c) the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied underentry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.

RETURN

 

FORM GSTR-6

INPUT TAX CREDIT RULES

 

RULE 1 – DOCUMENTRY REQUIREMENT FOR CLAIMING INPUT TAX CREDIT

 

 

Clause (f) of sub-rule (1) of rule 1  

(1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely:-

           

(f) A document issued by an Input Service Distributor, as prescribed in clause (g) of sub-rule (1) of rule 4.

RULE 4 OF INPUT TAX CREDIT RULES- “Procedure for transfer of Input Tax Credit by Input Service Distributor”

Clause (g) of sub-rule (1) of rule 4

The Input Service Distributor shall issue an ISD invoice, as prescribed in sub-rule (1) of rule invoice-7, clearly indicating in such invoice that it is issued only for distribution of input tax credit.

RULE 7 OF TAX INVOICE, DEBIT AND CERDIT NOTES RULES- “TAX INVOICES IN CASE OF SPECIAL CASES”

Sub-Rule 1 of rule 7

 

An ISD invoice or, as the case may be, an ISD credit note issued by an Input Service Distributor shall contain the following details:-

(a) name, address and GSTIN of the Input Service Distributor;

(b) a consecutive serial number containing alphabets or numerals or special characters hyphen or dash and slash symbolised as , “-”, “/”, respectively, and any combination thereof, unique for a financial year;

(c) date of its issue;

(d) name, address and GSTIN of the recipient to whom the credit is distributed;

(e) amount of the credit distributed; and

(f) signature or digital signature of the Input Service Distributor or his authorized representative:

Exemption for Banking Company, FI, NBFC

Provided that where the Input Service Distributor is an office of a banking company or a financial institution, including a non-banking financial company, a tax invoice shall include any document in lieu thereof, by whatever name called, whether or not serially numbered but containing the information as prescribed above.

RULE 4 OF INPUT TAX CREDIT RULES- “Procedure for transfer of Input Tax Credit by Input Service Distributor”

Distribute in the Same Month:-

            Clause (a) of sub-rule 1 of rule 4

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 in accordance with the provisions of Chapter —- (Return Rules);

Clause (b) of sub-rule 1 of rule 4

The Input Service Distributor shall, in accordance with the provisions of clause (d), separately distribute the amount in-eligible as input tax credit under the provisions of sub-section (5) of section 17 and the amount eligible as input tax credit;

Clause (c ) of sub-rule 1 of rule 4

the input tax credit on account of central tax, State tax, Union territory tax and integrated tax shall be distributed separately in accordance with the provisions of clause (d)

(d) the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) of sub-section (2) of section 20 to one of the recipients ‘R1, whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipient(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, “C1”, to be calculated by applying the following formula:-

C1 = (t1÷T) × C

where,

“C” is the amount of credit to be distributed,

“t1” is the turnover, as referred to in section 20, of person R1 during the relevant period, and

“T” is the aggregate of the turnover of all recipients during the relevant period;

(e) the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient;

(f) the input tax credit on account of central tax and State tax shall, 3

(i) in respect of a recipient located in the same State in which the Input Service Distributor is located, be distributed as input tax credit of central tax and State tax respectively;

(ii) in respect of a recipient located in a State other than that of the Input Service Distributor, 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 that qualifies for distribution to such recipient in accordance with clause (d);

(g) The Input Service Distributor shall issue an ISD invoice, as prescribed in sub-rule (1) of rule invoice-7, clearly indicating in such invoice that it is issued only for distribution of input tax credit.

(h) The Input Service Distributor shall issue an ISD credit note, as prescribed in sub-rule (1) of rule Invoice-7, for reduction of credit in case the input tax credit already distributed gets reduced for any reason.

(i) Any additional amount of input tax credit on account of issuance of a debit note to an Input Service Distributor by the supplier shall be distributed in the manner and subject to the conditions specified in clauses (a) to (g) and the amount attributable to any recipient shall be calculated in the manner provided in clause (d) above and such credit shall be distributed in the month in which the debit note has been included in the return in FORM GSTR-6.

(j) Any input tax credit required to be reduced on account of issuance of a credit note to the Input Service Distributor by the supplier shall be apportioned to each recipient in the same ratio in which input tax credit contained in the original invoice was distributed in terms of clause (d) above, and the amount so apportioned shall be,-

(i) reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR-6; and

(ii) added to the output tax liability of the recipient and where the amount so apportioned is in the negative by virtue of the amount of credit to be distributed is less than the amount to be adjusted.

(2) If the amount of input tax credit distributed by an Input Service Distributor is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the Input Service Distributor, the process prescribed in clause (j) of sub-rule (1) shall, mutatis mutandis apply for reduction of credit.

(3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the ISD credit note specified in clause (h) of sub-rule (1), issue an ISD Invoice to the recipient entitled to such credit and include the ISD credit note and the ISD Invoice in the return in FORM GSTR-6 for the month in which such credit note and invoice was issued.

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