The finance bill 2024, introduced with the annual budget has brought some notable changes in the concept of ‘Input Service Distributor (ISD)’ in GST. Apparently, these changes have mandated the ISD compliance for all multi-GSTIN entities.
While the notion of Input Service Distributor is not entirely new, having been a feature of Service Tax era its essence remains unchanged. It facilitated businesses to operate at their convenience and allow centralized procurement of services and the distribution of credit to units where such services are used.
However, in GST era, given an option to transfer the credit by way invoicing between distinct persons (concept is commonly called cross charge), many questioned the necessity of the ISD compliance. This dilemma left tax payers grappling with whether to opt for ISD or cross charge. Prima-facie, the changes introduced in this budget have put this confusion to an end.
In this article, we have tried to summarize the changes introduced in this budget. A comparative analysis of old vs. new provision is done to understand the impacts of these changes.
|
Particulars |
Erstwhile Provision |
New Provision |
Impact |
| Definition covered invoices issue under RCM |
No |
Yes |
ISD can now receive the service invoices issued under RCM |
| Provision of receiving service on behalf of distinct person |
No |
Yes |
Definition altered to state that ISD receives service on behalf of distinct person |
| ISD compliance was compulsory |
No |
Yes |
Section 20(2) amended to replace the word “may” with “shall”. Hence making ITC distribution a mandatory compliance |
| Manner of distribution as per section 20 |
Available in law |
Yet to be prescribed |
The provisions relating to ISD credit distribution shall be prescribed in GST rules. |
The amendments to the law have clearly stated that a distinct person receiving services on behalf of other must mandatorily transfer the ITC with the ISD mechanism only, but has increased the compliance burden on the tax payer.
Now, a taxpayer is required undertake a series of tasks, like:
- Getting registered under ISD
- identify all the services which are received on behalf of other distinct persons (common services),
- Rationale of distributing such ITC
- Issue of invoices for ITC distribution
- Filing monthly returns
- Maintaining records to be used at the time of tax assessments
The current situation still raises numerous unresolved questions about whether failure to register as ISD and not distributing of Input Tax Credit (ITC) will result in imposition of penalties. If someone continues to adhere to cross change would that constitute non-compliance and if so, then under which provision. Also, this change will also over rule all the explanations which was given in the circular no. 199/11/2023-GST, dated 17.07.2023 which stated that a tax payer can follow ISD & cross charge as per their wish. It also explained that distribution of common ITC of service is not mandatory.
Conclusion: The amendments to the ISD provisions in GST, introduced through the 2024 Finance Bill, have implications for multi-GSTIN entities. While clarifying certain aspects, they also raise compliance burdens and questions. Taxpayers must adapt to the new requirements, seeking expert guidance and staying vigilant for further developments in GST regulations.
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Disclaimer: This article aims to improve understanding and clarity. The information provided should not be the only factor in making business decisions. Efforts have been made to ensure accuracy and reliability, the content may not cover all relevant factors or considerations for every situation. It’s strongly advised that readers should consult qualified professionals before implementing any insights or strategies from this article in a business context. The author bears no responsibility for any business outcomes whatsoever, resulting from such decisions
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