Input Service Distributor: Meaning & Compliance

MEANING & DEFINITION

An Input service distributor (ISD) is a taxpayer who may be a supplier of goods or services or both. The ISD may be a head office which enters into a contract with supplier of services for receiving services for itself and for its branches across same or different states. The bills for such expenses would be raised on the head office but the head office itself would not be providing any output supply so as to utilize the credit which gets accumulated on account of such input services. The concept originates with the aim of proportionately distributing the credit to the entities having the same PAN & Different GSTIN on common invoices pertaining to input services and not goods (inputs or capital goods) among the branches who had received the services but not received the credit within the normal procedure (Filing return u/s - 39).

As per section 2(61) of cgst act,2017 "Input Service Distributor" means an office of the supplier of goods or services or both which receives tax invoices issued under Section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office;

REGISTRATION

An Input service distributor is compulsorily required to get himself registered under this act whether or not separately registered as per section 24 of cgst act, 2017. Here “Separately registered” means registration as per normal provisions of this act. The ISD shall apply for registration in form GST_REG 01 irrespective of any turnover threshold limit. This registration will be in addition to the registration as a normal taxpayer under gst. The other locations may be registered separately. Since the services relate to other locations the corresponding credit should be transferred to such locations (having separate registrations) as the output services are being provided there.

RETURNS & OTHER COMPLIANCE

The input tax credit available for distribution in a month shall be distributed through details furnished in FORM GSTR-6 filed under section 39(4) up to 13th of the next month. It contains details of ITC received by an Input Service Distributor and distribution of ITC. The ISD can get the information of the ITC in form GSTR-2B . GSTR 6 has to be filed by every ISD even if it is a nil return.

The recipient of the tax credit distributed by ISD to branches can view the tax credit in GSTR-6A that is auto-populated from the supplier's return. In turn, the recipient branch can claim the same by declaring it in GSTR-3B. An ISD need not file annual returns in form GSTR-9.

Invoicing - The ISD shall issue an Input service distributor invoice/credit note as prescribed under rule 54(1) of CGST rules, 2017 clearly indicating in such invoice/credit note that it is issued only for distribution/reduction of the Input tax credit.

MANNER OF DISTRIBUTION OF INPUT TAX CREDIT

1. The amount of credit distributed by an ISD shall not exceed the amount of credit available for
2. The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to such recipient.
3. 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 turnover in State or Union territory.
4. The Input credit shall be distributed on pro-rata basis to branches whether the branches are registered or not, irrespective of the fact that the branch is engaged in making wholly exempt
5. The Input service distributor shall separately distribute the amount of Ineligible credit (Under section - 17(5) or Otherwise) and the amount of eligible Input tax
6. Formula - C1 = (t1 ÷ T) ×C , where 'C' - credit to be distributed, 't1' - turnover in state or UT as referred in section 20 of cgst act, 2017, 'T' - Aggregate
7. The Input tax credit on account of IGST shall be distributed as Input tax credit of IGST only to every recipient.
8. The input tax credit on account of CGST & SGST or UTGST shall in respect of recipients located in same State or Union territory in which the ISD is located, the input tax credit be distributed as CGST & SGST or UTGST However, in respect of recipients located in State or Union territory other than that of ISD the input tax credit be distributed as IGST and the amount to be distributed shall be equal to the aggregate amount available for distribution of CGST & SGST or UTGST.
9. Any Input tax credit required to be reduced on account of the issuance of a credit note to Input service distributor by the supplier of services, shall be apportioned to each recipient in the same ratio in which the input tax credit contained in original invoice was distributed.