mail-box-lead-generation

written by | May 16, 2022

What is Input Service Distributor (ISD) Under GST?

×

Table of Content


In this article, we will discuss in detail the meaning of an input service distributor (ISD). An input service distributor is an authoritative officer who is in charge of the distribution of the GST input tax credits. An ISD under GST is responsible for maintaining the tax credits to any firm's GSTIN or the firms' branches with a different GSTIN but registered within the same PAN number.

Did you know?

The registration for an ISD is compulsory under section 24 of the GST Law, 2017. You are required to make an application for registration in Form GST REG-01.

Who Is an Input Service Distributor in GST?

An Input Service Distributor is a kind of taxpayer who is the first in charge of receiving all the invoices for the services used by a firm's branches. The role of the ISD is to distribute the tax to be paid, known as Input Tax Credit (ITC). The firm that requires its ta to be paid should have different GSTINs, but it is mandatory for the branches to have the same PAN as the ISD. 

As stated in Section 2(61) of the CGST Act, 2017, an ISD under GST means:

  • It is an authoritative officer of supplier of goods and services.
  • This officer gets tax invoices in return for input services.
  • He is responsible for distributing GST/CGST/UTGST credit to a goods supplier who has the same PAN.
  • He also issues invoices in order to distribute credit. 

An ISD under GST can have several offices like a head office, registered office, branch office, etc. He can avail of a number of input services, courier costs, housekeeping expenditures, security charges and pay the tax for all these services. Such a person can obtain the status of an Input Service Distributor in GST.

Also Read: GSTR-3B: Return Filing, Format, Eligibility & Rules

Situations Where ISD under GST Is Not Applicable?

There are a few conditions where the ISD under GST is not allowed to distribute the input tax credit:

  • A scenario where the Input Tax Credit is paid for input and capital goods. 
  • The ISD in the GST mechanism is designed for only the distribution of the credit on common invoices. These invoices should be in accordance with the input services. 
  • ISD under GST is not applicable when capital goods are involved. 

Pertaining to all these conditions, the input service distribution is not applicable. 

The Purpose of Registering as an ISD under GST

Companies with multiple branches or multinational operations usually focus on purchasing goods or services from a single industry. In such cases, in order to effectively remove the GST tax, the GST input tax credit accumulated by the purchasing agency must be distributed to the branch according to the consumption of services.

In this scenario, the taxpayer may register with the centralised purchasing office as an Input Service Distributor. Once the purchases are made, the ISD under GST can transfer the IGST, CGST and SGST tax credits to branches by issuing an invoice. A key element for ISD registration under GST is that it applies only to the tax related to the input services. According to ISD, only the tax under input services can be distributed. The Input Service Distributor cannot distribute the input tax credit for input goods and fixed assets.

The mechanism of the ISD in GST is a provision designed for businesses that share various common expenditures. These companies have a centralised system of clearing bills and payments from a specific location. The process of input service distribution is meant to facilitate the process of taking credits. This entire concept is said to help enhance the smooth flow of credit under the regulations of GST. 

Insight on Input Service Distribution in GST under Earlier Regime and GST Regime

Differentiation 

Earlier Regime

GST Regime

  1. Who can register as an Input Service Distributor 

Any branch of the manufacturer of the end product or a business that provides output service.

Any branch or office of the goods’ supplier or services. 

  1. On the basis of which documents can the credit be issued?

When an office receives any invoice issued in accordance with the rule 4A of the Service Tax, 1994. This should be issued in the direction of the buying of input services.

When a branch office receives an invoice issued by the goods’ supplier in the direction of receipt of input services. 

  1. What is the process to distribute credit?

Offices can issue invoices, bills for distribution to manufacturers or service and good providers. 

When you issue an ISD invoice for distribution to a taxable goods supplier with an identical PAN as the office mentioned above.

  1. What is the type of tax allowed to be distributed?

The service tax credit is paid on the mentioned services.

The credit of CGST/ IGST is paid on the mentioned services.

  1. To whom can the credit be distributed?

To the branches and outsourced manufacturers of the mentioned office. 

The supplier possessing the same PAN is eligible for the distribution of the credit. 

These are the primary and most important differentiation points between the two regimes. As mentioned, the distribution of credit is limited to the offices or branches with the same PAN. The explanation behind this concept is the shift of taxable credit from manufacturing to supply. The old regime was responsible for the rise of tax liability at the time of supply. This would finally result in the payment of taxes by ISD under GST using the available input tax credit. 

The Conditions to be fulfiled by an Input Service Distributor 

Following are the important conditions to be fulfilled by an ISD:

Registration

It is mandatory for an input service distributor to register as ISD under GST. This registration is an additional process after an input service distributor in the GST register as a regular taxpayer. This kind of taxpayer is obliged to register under serial number 14 of the REG-01 form as an ISD under GST. Only after the registration process mentioned the Input Service Distributor is eligible to distribute the credits to the receivers. 

Also Read: How to Get a PAN Card for Your Business?

Invoicing

The process of distribution of credits can only be done by issuing the tax credits as an ISD invoice. 

Returns

The ISD under GST has to ensure that the amount of credit does not surpass the amount of tax credit accessible with the input service distributor at the end of the month. This amount of credit distributed should be filed in GSTR-6 by the 13th day of the coming month. 

The tax credit recipient can see the tax credit that ISD has distributed in GSTR-6A, which is auto-populated from the supplier's return. The recipient branch, in turn, can claim it by stating it in GSTR-3B. An ISD is not required to file Form GSTR-9 annually.

Distribution of ITC

As per the reverse charge mechanism, the tax credit is not eligible for distribution to the receivers. In this case, the input service distributor is required to use this credit as a regular taxpayer. 

Conclusion

In the case of reducing the ITC distributed by an input service distributor in GST, the process of lowering the credit will remain the same. The concept of ISD under GST was introduced to make the distribution of credits easier for businesses that focus on centralised payments from any one of their branch offices. The responsibility of the input service distributor is to distribute the Input Tax Credit by issuing an agreement that consists of the exact amount of the ITC distributed. 

Do you have issues with payment management and GST? Install the Khatabook App, a friend-in-need and one-stop solution for all issues related to income-tax or GST filing, employee management and more. Try it today!

FAQs

Q: Is it compulsory for an ISD under GST to register separately?

Ans:

Yes. The registration for a specific ISD for one office of the taxpayer will be an additional procedure to the registration as a regular taxpayer.

Q: Is it mandatory to distribute credit to only revenue-generating units by ISD under GST?

Ans:

Only the revenue-generating units possess a liability to GST. Hence, by the rules, the ITC on the used services by these units must be allocated to use to set off in the return of their tax liability.

Q: Is it possible for a taxpayer to have multiple ISD under GST?

Ans:

Yes. Various offices of a taxpayer are eligible to apply for ISD registration under GST.

Q: Is ISD registration under GST mandatory?

Ans:

It is mandatory for an input service distributor to register as ISD under GST. This registration is an additional process after an input service distributor in the GST register as a regular taxpayer. This kind of taxpayer is obliged to register under serial number 14 of the REG-01 form as an ISD under GST. Only after the registration process mentioned the Input Service Distributor is eligible for distributing the credits to the receivers.

Q: What is an Input Service Distributor in GST?

Ans:

An input service distributor is an authoritative officer who is in charge of the distribution of the GST input tax credits. ISD under GST is responsible for maintaining the tax credits to any firm's GSTIN or the firms' branches with a different GSTIN but registered within the same PAN number.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
×
mail-box-lead-generation
Get Started
Access Tally data on Your Mobile
Error: Invalid Phone Number

Are you a licensed Tally user?

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.