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Input Service Distributor (ISD) in GST

Input Service Distributor (ISD) is an office/business which receives the tax invoices for the input services used by its branches/units. The ISD issues a designated document for distributing the ITC credit of Central Tax (CGST), State Tax (SGST)/Union Territory Tax (UTGST) or Integrated Tax (IGST) paid on the said services, to the branches/units having the same PAN as that of the ISD. The ISD is only meant for distributing the ITC on common invoices pertaining to input services and not goods (inputs or capital goods).

In this article, you will find:

The concept of Input Service Distributor (ISD) was introduced in the service tax regime, and the same has been carried forward under the GST regime as well. Under GST, an Input Service Distributor needs to mandatorily obtain a separate registration as ISD using the form GST REG-1. The other related units can be registered separately under GST.

IMPORTANT

There is no threshold limit for GST registration for an Input Service Distributor (ISD). All ISD’s have to register as ‘ISD’ under GST compulsorily.

How Does ISD Distribute ITC To Different Units?

The ITC available for distribution in a month should be distributed in the same month, and the details of this distribution need to be furnished in FORM GSTR-6 within thirteen days after the end of the relevant month. However, an ISD will not be required to file the annual return.

The ISD should proportionately distribute both the ineligible and eligible input tax credit.

The distribution of Central Tax, and State Tax or UT Tax credit shall be as follows:

Input Service Distributor

The input tax credit on account of Integrated Tax will be distributed as Integrated Tax (IGST).

IMPORTANT

ISD’s and its units must have the same PAN.

Illustration

Let us take an example to understand this concept.

The corporate office of XYZ Ltd. is at Delhi having branches in UP, Rajasthan and Chennai. The corporate office at Delhi receives an invoice for renewing the software license, but, this software is used at all the locations. Since the software is used at all the four sites, the ITC available on this invoice cannot be claimed at Delhi. The same has to be distributed to all four locations. For that reason, the Delhi corporate office has to act as ISD to distribute the credit.  The distribution shall be on a pro-rata basis of the turnover of all the units.

Note: The ITC has to be distributed only to the units to which the supply is rendered. If a particular input service is related to only one unit, and the invoice is issued in the name of ISD, the ISD needs to distribute the ITC to that particular unit only.

Exceptions

ISD cannot distribute input tax credit on:

  • Amounts paid for goods (inputs – raw materials Or capital goods like machinery, equipment)
  • Amounts paid to outsourced manufacturers or service providers
  • Invoices on which tax is to be paid under reverse charge mechanism.

Note:  ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services and not goods.

Conclusion

The concept of ISD was introduced for businesses that share common expenditure and where the invoicing or payment is made from a centralised location. Further, the concept of Input Service Distributor (ISD) simplifies the ITC distribution process that helps in the seamless flow of credit under GST.