Input Service Distributor (ISD) under GST
ISD or Input Service Distributor is a taxpayer under the GST. They are required to distribute the GST Input Tax Credits or ITC which is available to the taxpayer under the GSTIN or registered number to its branches. Here the units or branches to which the ISD is distributed will be having different GSTIN but the PAN should be the same.
ISD, who is a taxpayer would receive all the invoices for the services which were availed by the entity along with its branches. So, the ITC which is credited to the electronic credit ledger of such ISD would be distributed on a proportional basis to the branches using ISD Invoices. Here as stipulated before, the point of stress is that entities can have different GSTIN but should have same PAN.
Taking an example, we can say that ABC is a manufacturing entity with its headquarters in Delhi. It also has its branches in Pune, Coimbatore, Kolkata, and Palakkad. The head office incurred an annual expense related to the asset maintenance or AMC, which includes the assets used by all branches or units of the company located in Pune, Coimbatore, Kolkata, and Palakkad. As it includes assets used by these units, the ITC credited cannot be availed fully by Delhi and need to be proportionally distributed among the branches. So, we can that the headquarters located in Delhi is the ISD here.
Circumstances in which ISD would not be Applicable
ISD cannot distribute the ITC available in its electronic credit’s ledger during the following situations:
– When the distribution is to be made to outsourced or third-party manufacturers or service providers.
– When ITC is paid on capital goods or input goods, this would include, machinery, raw materials, etc.
Why Register as ISD?
Under certain policies implemented by the companies, we can see that there will be a centralized payment or billing system used, where there is a large share of common expenditure being held by the company. So, for making the payment of GST for such companies easy along with the availing of ITC available, it is useful that the head office or such centralized head office is registered as ISD.
ISD under GST Regime
Under the GST Regime, the office of supplier of goods and/or services can register as an ISD and the credits will be made available on the basis of the tax invoices issued by the supplier towards the receipt of such input services.
For distributing the available ITC, the ISD should issue ISD invoices to the branches or units which are having different GSTIN but the same PAN. So, the same cannot be distributed to any outsources or third-party manufacturers, or service providers.
Here, the tax credits pertaining to CGST, SGST, and IGST can be distributed.
Conditions to be Fulfilled by ISD
Along with the registration as a Normal Tax Payer, the assessee should compulsorily register themself as ISD also. For this in Form REG-01, the applicant should specify themselves as an ISD, on which they shall be able to distribute the ITC available to the recipients.
For distributing the credit of ITC available an ISD invoice should be issued to the units or branches by the ISD.
The tax credit or ITC which is distributed among the branches or units should not exceed the total tax credit available with the ISD. And this should be availed by filing a return GSTR-6 on the 13th of the succeeding month by the ISD. Prior to the appropriation the total amount of ISD available should be ascertained by the ISD from the GSTR-2B return.
Restriction on Distribution
The ITC pertaining to tax paid, if any, under reverse charge mechanism shall not be available with ISD for distribution. So, the ITC of the same shall be availed by the ISD as a normal taxpayer.
The following points should be noted on a further basis:
– The ITC which is pertaining to an input service that was utilized entirely by one of the recipient branches or unit should be allocated fully to such unit or branch for utilization and this shall not be allocated to any other.
– The ITC pertaining to the input services which were availed by more than one recipient branch or unit or all recipient branches or units shall be allocated to all such recipient branches or units on a proportional basis say on the basis of turnover.
Wrongful Distribution of Credit by ISD
The following enlisted cases shall be considered as an inappropriate distribution of tax credit by ISD:
– A distribution which is made in a ratio that is inappropriate.
– Credit which is distributed to the recipient branches or units, over and above the available ITC.
Such amount which is distributed to recipient branches and units over and above the ITC available shall be recovered from the recipient units and branches along with interest and also the provisions of ‘Demand and Recovery’ shall also apply to such branches or units affecting the recovery to be made from them.