From April 1, 2025, Input Service Distributor (ISD) registration becomes mandatory under GST, applying only to input service invoices received on behalf of distinct persons. ITC must be distributed monthly based on recipient branches’ turnover. For same-state branches, ITC is allocated as CGST + SGST, while for different-state branches, it is converted to IGST. If an input service pertains exclusively to one branch, ITC is allocated solely to that branch. Debit and credit notes affect ITC distribution proportionally. Ineligible ITC cannot be distributed and must be tracked separately. ISD invoices must document ITC distribution per Rule 54(1). Incorrect ITC distribution requires reversal with interest. Even unregistered or exempt branches must be included in turnover-based ITC allocation.
Let us understand the new ISD Provision in a Question Answer form
1. From which date ISD is applicable?
A: ISD registration is become mandatory from 01st April, 2025.
2. ISD is applicable on Goods or Services?
A: ISD is applicable only on Input Service Invoice received by ISD for or on behalf of distinct persons.
For Example:
– Statutory Audit Invoice received by HO which is related to its branches also.
– Accounting Software Invoice received by HO which is used by branches also.
3. What are the key rules for ITC distribution by ISD?
A: ITC must be distributed in the same month it is received and cannot exceed the available credit. ITC is distributed based on the turnover of each recipient branch. For same-state branches, ITC is distributed as CGST + SGST, while for different-state branches, it is converted to IGST.
4. How is ITC distributed when it applies to multiple branches?
A: ITC is distributed proportionally based on the turnover of each branch. The formula for distribution is C1 = (t1/T) × C, where C1 is the ITC for a specific recipient, t1 is the turnover of that recipient, T is the total turnover of all recipients, and C is the total ITC to be distributed.
5. What happens if an input service is exclusively for one branch?
A: The ITC must be distributed only to that branch.
6. How is ITC distributed for branches in the same state versus different states?
A: For branches in the same state as the ISD, ITC is distributed as CGST + SGST. For branches in different states, ITC is converted to IGST.
7. What if a supplier issues a debit or credit note?
A: If a supplier issues a debit note, the extra ITC must be distributed in the same way as the original ITC. If a supplier issues a credit note, the ITC must be reduced proportionally for all recipients.
8. How is ineligible ITC handled?
A: Ineligible ITC must be tracked separately and not distributed.
9. What documentation is required for ITC distribution?
A: ITC distribution must be documented with an “ISD Invoice” under Rule 54(1).
10. What if Ineligible ITC was distributed?
A: If an ISD wrongly distributes Ineligible ITC, the recipient unit must reverse the ineligible credit along with interest as per Section 50 of the CGST Act,
11. What happens if there is Unregistered or Exempt Branches?
A: ITC must be allocated based on turnover, even if a branch is unregistered.
12. What are the key takeaways for ITC distribution by ISD?
A: ITC must be distributed monthly and cannot exceed available credit. Exclusive services’ ITC goes only to that branch, while common services’ ITC is distributed based on turnover. Same-state ITC is distributed as CGST + SGST, and different-state ITC is distributed as IGST. Adjustments for credit or debit notes must be made proportionally.
Author Bio
