The Goods and Services Tax (GST) framework in India includes various mechanisms to ensure seamless tax credit flow across different branches of a business. One such mechanism is the Input Service Distributor (ISD). An ISD is a taxpayer that receives invoices for services utilized by its branches and distributes the Input Tax Credit (ITC) to these branches proportionally through ISD invoices. While these branches may have different GSTINs, they must share the same PAN as the ISD. This article is providing detail analysis of ISD.
With notification no 16/2024-Central Tax dt 6th August, 2024 government amended sec 2(61) and sec 20 of the CGST Act, 2017. It made the ISD provisions mandatory, effective from 1st April 2025.
ISD or an Input Service Distributor is a type of taxpayer under GST who needs to distribute the GST input tax credits that pertain to its GSTIN to its units or branches having different GSTIN but registered under the same PAN.
• Let’s understand with an example =
The head office of M/s ABC Limited is located in Bangalore having branches in Chennai, Mumbai and Kolkata. The head office incurred annual software maintenance expense (service received) on behalf of all its branches and received the invoice for the same.
Since the software is used by all its branches, the input tax credit of entire services cannot be claimed in Bangalore. The same has to be distributed to all three locations. Here, the head office at Bangalore is the Input Service Distributor.
In some situations ISD will not be applicable:
ISD cannot distribute the input tax credit in the following cases:
1. Where ITC is paid on inputs and capital goods. For instance, raw materials and machinery purchased.
2. ITC cannot be distributed to outsourced manufacturers or service providers.
HOW IS CREDIT DISTRIBUTED?
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Vendors should raise invoices on the ISD registration.
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ISD should accumulate all the credit and categorize it as follows:
- Specific to a branch
- Specific to two or more branches
- Common to all the branches
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Distribute the credit by issuing an ISD invoice:
- When the branch and ISD are in the same state: CGST/SGST/IGST
- When the branch and ISD are in different states: IGST
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Distribution should be computed based on the previous year’s turnover.
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If a new branch is added, the last quarter’s turnover should be considered.
Conditions to be fulfilled by ISD=
• Registration:
Input Service Distributor has to compulsorily register as “ISD” apart from its registration under GST as a normal taxpayer. Such taxpayer has to specify under serial number 14 of the REG-01 form as an ISD. They shall be able to distribute the credit to the recipients only after this declaration.
• Invoicing:
ISD can distribute the amount of tax credit to recipients as earlier stated by issuing an ISD invoice. ITC available in a month must be distributed in the same month.
• Until 1st April 2025, an ISD will not be able to accept any invoices on which tax is to be paid on reverse charge basis. It is to be noted that a recipient of service taxable under reverse charge mechanism is responsible to discharge the tax liability and then only take the credit of the same. So, if it wants to take reverse charge chargeable supplies, it should make sure to get registered as a normal taxpayer but cannot distribute the tax credit available thereof. From 1st April 2025, ISD can take input services on which GST is paid on reverse charge but can be distributed to its GSTINs.
• The credit of CGST, SGST/UTGST or IGST needs to be distributed separately. Also, the eligible and ineligible credit needs to be apportioned separately.
• He needs to issue ISD credit note if the credit that is already distributed gets reduced for any reason.
• Returns:
Amount of tax credit distributed should not exceed the amount of tax credit available with the ISD as at the end of a relevant month to be filed in GSTR-6 by the 13th* of succeeding month by ISD. The ISD can get the information of the ITC from the GSTR-2B return.
The recipient of the tax credit can view the tax credit so distributed by ISD in GSTR-6A that is auto-populated from the supplier’s return. In turn, the recipient branch can claim the same by declaring it in GSTR-3B. An ISD need not file annual returns in form GSTR-9.
Distribution of Input Tax Credit
• The Input Tax Credit (ITC) available for distribution in a month shall be distributed in the same month and details of the same shall be given in the form GSTR-6
• The credit of tax paid under the reverse charge mechanism u/s 9(3) and 9(4) shall also be distributed to the recipients by ISD.
• The tax credit available against any specific input services used entirely by one of the recipients can be allocated only to that recipient for utilization of such credit and not to other recipients.
• The tax credit available against the input services used commonly by more than one recipients of the ISD shall be allocated to all such recipients that are operational during the year on a proportionate basis in the following ratio:
- Ratio: Turnover in a State/ Union territory of such recipient, during the relevant period/ Aggregate of the turnover of all such recipients
• The tax credit available against the input services used commonly by all the recipients of the ISD shall be allocated to all the recipients that are operational during the year on a proportionate basis in the following ratio:
- Ratio: Turnover in a State/ Union territory of such recipient, during the relevant period/ Aggregate of the turnover of all such recipients.
GSTR 6: Return Filing, Format, Eligibility & Rules=
• GSTR-6 is a monthly GST return that every Input Services Distributor must file for furnishing details of input service invoices on which credit has been received and needs to be distributed. There are a total of 11 sections in this return.
• GSTR 6 has to be filed by every ISD even if it is a nil return.
• The due date for filing of GSTR 6 as per GST Act is 13th of next month. Late fees have been reduced to Rs. 50 per day. However, no provision for reduction is made where NIL return is filed.
• There is no provision under GST for revising GSTR 6. Any mistakes made in the return can be corrected while filing GSTR 6 of the following month.
• What is GSTR 6A?
GSTR 6A is an automatically generated form based on the details provided by the suppliers of an Input Service Distributor in their GSTR 1. GSTR-6A is a read-only form. Any changes to be made in GSTR-6A have to be done while filing GSTR-6.
Note: You do not have to file GSTR-6A. It is a read-only document. You can view GSTR-6A by going to the Return Dashboard on the GST Portal and clicking on ‘PREPARE ONLINE’ on GSTR6A tile.
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