Input Service Distributor (ISD)

Introduction: –

Many Companies have multiple branches across various locations. The services which are availed by all the branches are usually invoiced or billed to a centralized location. In such cases, the liability of tax may arise in the branches, since the ITC related to such services are availed by the centralized location to whom the services are invoiced. Such scenario may lead to outflow of funds in the branches and accumulation of ITC in the centralized location.

 The concept of Input Service Distributor(ISD) is useful in such circumstances. The mechanism of ISD is designed in a way that allows the distribution of input tax credit from the centralized location to various branches. The Head office of the entity has to register themselves as Input Service Distributor under GST. Let’s understand the concept of ISD with an example mentioned below.

Example: – 

XYZ LTD is a Company having its head office in Mumbai and Branch office located at Gujarat. The Head office of the Company has taken services from a professional, which has been utilized by the Gujarat Branch also.

In this case, the Head office cannot claim the entire input tax credit as service has also been utilized by the Gujarat Branch. To pass on the credit to the branch office, the head office raises an invoice with a heading “ISD invoice” with the help of which the branch can claim ITC for the services.

Condition for Input Service Distributor: –

Non Applicability of ISD

Manner of distribution of ITC: –

Conclusion: –

The concept of ISD under GST was introduced to make credit distribution easier for businesses that focus on centralised payment from any one of their branches. ISD has helped to enhance the smooth flow of credit under the regulations of GST. A lot of hassle related to ITC distribution is solved due to this approach.

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(This article represents the views of the authors only and does not intent to give any kind of legal opinion on any matter)

 Authors:

Shripriya Aithal | Associate Consultant | +918779984264 | [email protected]

Parth Bhikadiya | Associate Consultant | +918355882127 | [email protected]