Input Service Distributor (ISD) and Distribution of Credit under GST

Who is Input Service Distributor (ISD)

According to section 2(61), Input Service Distributor means

1. An office who supplies goods or services or both, and

2. Receives input services with a valid invoice as per section 31, and

3. Issues a prescribed document for the purpose of distribution of credit of IGST, CGST, SGST or UTGST on the said services to a taxable supplier of goods or services or both having the same Permanent Account Number (PAN) of that of the said office

Registration of Input Service Distributor (ISD)

Input service distributor to get registration separately as ISD even it is registered already in a state.

Conditions for Distribution of Credit

The Input service distributor can distribute the credit of IGST, CGST, SGST or UTGST to the recipient of such credit subject to certain conditions as below:

1. Credit can be distributed against a document containing such details as prescribed
2. The amount of credit to be distributed should not exceed the credit available for distribution
3. When the credit on input service is attributable to a particular recipient of credit, such credit should be distributed only to that recipient
4. If the credit on input service is attributable to more than one recipient or all recipients, credit is to be distributed among the recipients on pro rata basis of the turnover of such recipients in their state during the relevant period to the aggregate of the turnover of all such recipients as applicable
5. Such recipients should be operational in current year

Note: ‘Relevant period’ is the financial year preceding the year in which credit is to be distributed when the recipients have turnover in that financial year.  If the recipients have no turnover in that financial year, the relevant period shall be the last quarter for which the details of turnover are available for all such recipients, previous to the month during which credit is to be distributed.

The recipients of credit are the persons who is having the same Permanent Account Number (PAN) as that of the Input service distributor.

How to Distribute Input Tax Credit by ISD

An Input Service Distributor should follow the below procedures while distributing the input tax credit:

1. Input tax credit should be distributed in the same month in which it is received

2. The details of the input tax distributed should be furnished in GSTR 6

3. Ineligible input credit should be separately distributed

4. ITC on account of IGST, CGST, SGST, UTGST should be distributed separately

5. ITC of IGST should be distributed as IGST only

6. ITC of CGST, SGST or UTGST should be distributed as CGST, SGST or UTGST if the ISD and recipient are located in the same state/union territory

7. ITC of CGST, SGST or UTGST should be distributed as IGST as aggregate of CGST and SGST or UTGST if the ISD and recipient are located in different states/union territories

8. ISD has to issue invoice as per rule 54(1) clearly indicating in such invoice that it is issued only for distribution of ITC

9. ISD has to issue credit note in case of reduction in the ITC already distributed

10. ISD can also distribute any additional ITC through a debit note

11. When ITC is reduced through credit note, ITC should be reduced in the same ratio by which it was distributed earlier in the original invoice. Credit is either reduced from the distributed credit in the month in which the credit note is included in GSTR 6 or added to output tax liability when the distributed credit is lesser than the reducing credit

12. If the distributed credit is reduced later on due to any reason for any recipient, including credit distributed to wrong recipient, the same process as mentioned in Point No.11 shall be followed. Such wrong credit can be distributed through an invoice to the eligible recipient.  Such credit note and invoice should be recorded in return GSTR 6 in the same month

Calculation Input Credit to be distributed

Input credit which is to be distributed to any recipient, whether registered or not, including the recipient who is making exempted supply shall be calculated in the following manner:

C₁ = (t₁ ÷ T) x C

C – Amount of input credit to be distributed

t₁ – Turnover of a particular recipient to whom the credit to be distributed

T – Aggregate turnover of all recipients, eligible to receive the ITC

C₁ – ITC amount is to be distributed to a particular recipient

Example:

Total ITC to be distributed (C) – Rs.50,000/-

Turnover of Chennai Branch (t₁) – Rs.5,00,000/-

Total turnover of all branches (T) – Rs.20,00,000/-

Answer

Rs.12500/- = (500000 ÷ 2000000) x 50000

ITC to be distributed to Chennai branch is Rs.12,500/- (C₁)