The document explains the concept of Input Service Distributor (ISD) under GST, detailing its importance for businesses with multiple branches to effectively manage and distribute input tax credits. It outlines the definition, registration requirements, and regulations governing ISD, including the proper distribution of credits across branches based on turnover. The document also emphasizes the filing requirements and the distinctions between intra-state and inter-state credit allocations.

1. InputService
Distributor (ISD) under
GST: BriefGuide

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on to know one of the most important concepts under taxation, ISD.

3. A provider of goods or services may have several locations,
including their head office, registered office, regional office,
marketing office, branch, godown, and sales depot. Each of these
locations uses a variety of input services, including security,
communication, courier, and housekeeping costs, to name a few,
and is responsible for paying service tax.To overcome the difficulty
of effectively utilising accumulated credit, such units and premises
may register as an Input Service Distributor to get credit on such
input services and to distribute credit to other units.

4. A taxpayer who receives invoices for the services used by its
branches is known as an Input Service Distributor (ISD). By
generating ISD invoices, it distributes the tax paid, known as the
InputTax Credit (ITC), to such branches in a proportionate manner.
The branches must share the same PAN as the ISD but may have
different GSTINs.

5. Let’s use an illustration to clarify.Company ABC Limited’s head
office is in Mumbai, and company also has offices in Chennai, Delhi,
and Kolkata.On behalf of all of its branches, the head office incurred
a yearly software maintenance charge (service received) and was
billed for it. Since the software is utilised by every branch, Mumbai is
not a valid location to claim input tax credits for the full scope of
services.To all three sites, the same must be given.The Input
Service Distributor in this case is the headquarters in Mumbai.

6. Definition of ISD

7.  According to Section 2(61) of the CGSTAct of 2017, a “Input
Service Distributor” is a location of the supplier of goods or
services or both that accepts tax invoices issued under Section 31
for the receipt of input services and issues a prescribed document
in order to distribute the credit of central tax, State tax, integrated
tax, or Union territory tax paid on the aforementioned services to
a supplier of taxable goods or services or both having the same
PermanentAccount Number.
 According to the definition, an office of a firm that distributes
input services is known as an input service distributor (ISD) under
the GST.This office receives tax bills for input services and
distributes the applicable input tax credit to other branch offices
of the same company.

8. Registration Under GST

9. A distinct registration must be obtained by an ISD.There is no
minimum need for ISD registration, and registration is required.
Businesses that are currently ISDs under the current system (service
tax, for example) will need to apply for a new ISD registration under
the GST.This is due to the fact that the current ISD registration
won’t be transferred to the GST system.

10. Relevance of ISD

11. For companies operating in India with several branches, ISD under
GST is relevant. Each branch from which a taxable supply is made,
as required by these businesses, must have a GSTIN.The business
would receive ITC (InputTax Credit) in the form of SGST,CGST, or
IGST based on the purchases made by the head office or branch.
Here, the government has created the ISD idea as mentioned below
to make sure that the ITC is fairly allocated among the various
business branches.
 If the recipients of the credit experienced turnover in their State or
Union territory in the fiscal year prior to the fiscal year during
which the credit is to be distributed, the fiscal year in question;
 If some or all of the recipients of the credit experienced no
turnover in their State or Union territory in the fiscal year prior to
the fiscal year during which the credit is to be distributed, the last
quarter for which information regarding the recipients’ collective
turnover is available.

12. Purpose of Registering As An ISD

13. The idea of an ISD is a facility made available to businesses with a
high percentage of shared expenses, where invoicing and payment
are handled from a single site.The facility is intended to strengthen
the seamless flow of credit under GST, and the mechanism is
intended to make the input tax credit application process for firms
simpler.

14. Where Is ISD Not Applicable?

15. In the following circumstances, ISD cannot disburse the input tax
credit:
 Where input and capital products are eligible for ITC. procurement
of equipment and raw supplies, for instance.
 ITC can’t be given to contractors who make goods or offer
services.

16. Ratio of Distribution Of Credit By
ISD

17. Only the unit to which the supply is directly due must receive the
credit. If input services may be attributed to more than one credit
recipient, the distribution will be based on the State/Union
Territory’s turnover, pro rata. Assume an ISD has 4 locations around
the nation.The ISD, however, may only transfer the credit to that
unit and not to other units if a certain input service only relates to
one unit and the bill is raised in the name of the ISD. If the input
services are shared by all units, then the distribution will be based
on the overall turnover ratio of all the units.

18. How InputTax Distributor can
distribute the credit under GST

19.  In cases where ISD and the distributor are located in the same
state:

20.  In cases where ISD and the distributor are located in different
states:

21. It should be noted that if the ISD and recipient are in different
States, the credit for CGST and SGST can also be issued as IGST.
Large organisations with presence in multiple States have added
this for easy credit. A situation where an ISD receives invoices for
input tax credit after payingCGST and SGST (on intra-State supply)
yet the destination unit is some other states may occur in practise.
The ISD cannot use the aforementioned input to make any credit
claims if it transfers the SGST of its state to the destination state.

22. Consider this situation, Upon payment of CGST and SGST (West
Bengal), an ISD located in Kolkata may get an invoice for intrastate
supply of input services.This service may be shared by its units
located in the State of Jharkhand as well as other states.The CGST
credit can be given to all of the ISD’s units, and those units can
spend the credit without any issues. However, if the SGST (West
Bengal) credit is given to units in other states, those states are not
permitted to use it for any other reason.Therefore, if the ISD and
Unit are located in separate States, a careful provision has been
provided in the statute that allows for the distribution of such SGST
Credit as IGST.Once the SGT (West Bengal) credit has been
allocated as IGST to the units in other states, those units may use
the IGST credit to pay their respective state’s CGST or SGST.

23. Filing of Returns by ISD

24. Every ISD must submit monthly returns in GSTR-6 within thirteen
days of the end of the month in accordance with Rule 65 of the
CGST Rules 2017 and must provide details regarding all ISD invoices
issued.The relevant recipients will receive the details from the
returns in their GSTR 2A.The beneficiaries are free to credit them
and include them in their GSTR-2.An ISD is exempt from filing an
annual return. Any invoices for which the tax is to be discharged via
the reverse charge procedure are not acceptable to an ISD.This is so
that tax credit distribution can be made easier thanks to the ISD
mechanism.As a person obliged to pay taxes, the ISD cannot
release itself from any tax obligations or pay taxes to the
government. ISD must register individually as a Normal taxpayer if
it intends to accept products with reverse charges.

25. Taxation can become very complicated to understand.That is why
we are here to make it easy for you! Head over to S20’s website and
check out our taxation course in Ahmedabad and we are sure you’ll
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Article Source: https://s20.in/blog/input-service-distributor-under-
gst-brief-guide/

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