Large Corporation usually has operation/place of business at multiple states which has common services like, Internal Audit fees, Statutory Audit fees, Banking Charges, Group Insurance, Consultation fees, etc. for the day today’s operation. The GST paid on such common services cannot be availed in any one particular state or any particular registration being common Input Tax Credit. Section 20 of the CGST Act 2017 specifies the manner of distribution of such Common Input Tax Credit.
1. Separate Registration as “Input Service Distributor”
Assess having a business operation at multiple states has to get GST registration state-wise and one separate registration of common office/place as “Input Service Distribution”, for distribution of common Input Tax Credit.
2. Accounting of Common Input Tax Credit
The Services which are common has to account separately and corresponding GST paid on such service has to declare in GSTR-6 return as “Input Credit Received for Distribution” under table no “3B2B”
And the corresponding distribution of ITC as per “turnover” to each registration under table no. “5,8 Distribution of ITC” Manner of Distribution
CGST Section 20 – Manner of distribution of credit by Input Service Distributor
CGST Section 20 (1)
The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.
CGST Section 20 (2)
The Input Service Distributor may distribute the credit subject to the following conditions, namely:––
(a) The credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;
(b) The amount of the credit distributed shall not exceed the amount of credit available for distribution;
(c) The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro-rata on the basis of the turnover in a State or turnover in Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;
(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro-rata on the basis of the turnover in a State or turnover in Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.
Explanation.––For the purposes of this section,––
(a) The “relevant period” shall be––
(i) if the recipients of credit have a turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or
(ii) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;
(b) The expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;
(c) the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied [under entry 84 and 92A] of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.
Rule 39 of CGST Rule 2017
Procedure for distribution of input tax credit by Input Service Distributor.-
(1) An Input Service Distributor shall distribute input tax credit in the manner and subject to the following conditions, namely,-
(a) the input tax credit available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6 in accordance with the provisions of Chapter VIII of these rules;
(b) the Input Service Distributor shall, in accordance with the provisions of clause (d), separately distribute the amount of ineligible input tax credit (ineligible under the provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible input tax credit;
(c) the input tax credit on account of central tax, State tax, Union territory tax, and integrated tax shall be distributed separately in accordance with the provisions of clause (d);
(d) the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) of sub-section (2) of section 20 to one of the recipients ‗R1‘, whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipient(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, ―C1‖, to be calculated by applying the following formula –
C1 = (t1÷T) × C
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of person R1 during the relevant period, and
“T” is the aggregate of the turnover, during the relevant period, of all recipients to whom
the input service is attributable in accordance with the provisions of section 20;
(e) the input tax credit on account of integrated tax shall be distributed as input tax the credit of integrated tax to every recipient;
(f) the input tax credit on account of central tax and State tax or Union territory tax shall-
(i) in respect of a recipient located in the same State or Union territory in which the Input Service Distributor is located, be distributed as an input tax credit of central tax and State tax or Union territory tax respectively;
(ii) in respect of a recipient located in a State or Union territory other than that of the Input Service Distributor, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient in accordance with clause (d);
(g) the Input Service Distributor shall issue an Input Service Distributor invoice, as prescribed in sub-rule (1) of rule 54, clearly indicating in such invoice that it is issued only for distribution of input tax credit;
(h) the Input Service Distributor shall issue an Input Service Distributor credit note, as prescribed in sub-rule (1) of rule 54, for reduction of credit in case the input tax credit already distributed gets reduced for any reason;
(i)any additional amount of input tax credit on account of issuance of a debit note to an Input Service Distributor by the supplier shall be distributed in the manner and subject to the conditions specified in clauses (a) to (f) and the amount attributable to any recipient shall be calculated in the manner provided in clause (d) and such credit shall be distributed in the month in which the debit note is included in the return in FORM GSTR-6;
(j) any input tax credit required to be reduced on account of issuance of a credit note to the Input Service Distributor by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed in terms of clause (d), and the amount so apportioned shall be- (i) reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR-6; or (ii) added to the output tax liability of the recipient where the amount so apportioned is in the negative by virtue of the amount of credit under distribution being less than the amount to be adjusted.
(2) If the amount of input tax credit distributed by an Input Service Distributor is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the Input Service Distributor, the process specified in clause (j) of sub-rule (1) shall apply, mutatis mutandis, for reduction of credit.
(3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the Input Service Distributor credit note specified in clause (h) of sub-rule (1), issue an Input Service Distributor invoice to the recipient entitled to such credit and include the Input Service Distributor credit note and the Input Service Distributor invoice in the return in FORM GSTR-6 for the month in which such credit note and invoice was issued.
ABC & Co, Chartered Accountant, Maharashtra issued an Invoice for Internal Audit to XYZ Ltd Delhi [Head office]. Which cover internal audit of 3 plants located in Maharashtra, Karnataka, and Gujarat. The following are the details of Invoice and Input Tax Distribution to various GST registration.
Invoice Details of ABC & Co Chartered Accountant
|Invoice Date||Invoice No||Customer Client||Taxable||IGST||Total|
XYZ Ltd has the following “turnover details”
The Input tax credit paid to be distributed in the following manner in term of Sec. 20(2)(d) pro-rate on the basis of turnover
|Credit available for distribution||Nature of Service||IGST||CGST||SGST||Ration of Distribution|
|ABC & Co, Chartered Accountant||Internal Audit||18000||0||0|
|Input Tax Distribution|
As above the Input Tax Credit of CGST can be distributed as CGST & IGST and SGST as SGST and IGST
Form the above table we can understand that the distributed shall not be more than the credit available for distribution
4. Issue of ISD invoice for distribution of ITC
The Input Service Distributor has to issue an ISD invoice to the recipient in terms of sec. 31 of the CGST Act 2017 and such an invoice should include the details as mentioned in Rule 46 & 54 of CGST Rule 2017. The issued invoices have to be reported in GSTR-6 return, the same will reflect in GSTR-2A of the recipient in respective month.
5. GSTR-6 Return-Compliances by Input Service Distributor
The Input Service Distributor has to file monthly GSTR-6 return mentioning all the Input Tax Received and distribution of the same to the recipient on the basis of turnover.
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