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Input Service Distributor (ISD) under GST

Updated on:  

08 min read

ISD or an Input Service Distributor is a type of taxpayer under GST who needs to distribute the GST input tax credits that pertain to its GSTIN to its units or branches having different GSTIN but registered under the same PAN.

Recent Updates on GSTR-6

28th May 2021
The due date to file GSTR-6 for April and May 2021 is extended up to 30th June 2021.

1st May 2021
The due date to furnish GSTR-6 for April 2021 has been extended up to 31st May 2021.

3rd April 2020
CBIC has notified that the due date to furnish GSTR-6 for the months of March 2020, April 2020 and May 2020 (falling due between 20th March 2020 to 29th June 2020) shall stand extended till 30th June 2020.

Who is an Input service distributor (ISD) under GST?

An Input Service Distributor (ISD) is a taxpayer that receives invoices for services used by its branches. It distributes the tax paid known as the Input Tax Credit (ITC), to such branches on a proportional basis by issuing ISD invoices. The branches can have different GSTINs but must have the same PAN as that of ISD.

Let’s understand with an example. The head office of M/s ABC Limited is located in Bangalore having branches in Chennai, Mumbai and Kolkata. The head office incurred annual software maintenance expense (service received) on behalf of all its branches and received the invoice for the same. Since the software is used by all its branches, the input tax credit of entire services cannot be claimed in Bangalore. The same has to be distributed to all three locations. Here, the head office at Bangalore is the Input Service Distributor.

Situations where ISD is not applicable

ISD cannot distribute the input tax credit in the following cases:

  • Where ITC is paid on inputs and capital goods. For instance, raw materials and machinery purchased.
  • ITC cannot be distributed to outsourced manufacturers or service providers.

Purpose of registering as ISD

The concept of ISD is a facility made available to business having a large share of common expenditure and billing or payment is done from a centralized location. The mechanism is meant to simplify the credit taking process for entities and the facility will strengthen the seamless flow of credit under GST.

Insight on ISD under Earlier regime and GST regime

Point of
Difference
Earlier RegimeGST Regime
1.  Who can be an Input service distributor?An office of the manufacturer or producer of final products or provider of output serviceAn office of the supplier of goods and/or services
2.  Document based on which credit can be distributedReceives invoices issued under rule 4A of Service Tax Rules, 1994 towards the purchase of input servicesReceives tax invoices issued by supplier towards receipt of input services
3. How to distribute credit?By issuing invoice, bill or challan for the purposes of distributing to such manufacturer or producer or provider.By issuing an ISD invoice for the purposes of distributing to a supplier of taxable goods and/or services having the same PAN as that of the office referred to above
4. Type of tax credit that can be distributedThe credit of service tax paid on the said servicesThe credit of CGST (or SGST) and/or IGST paid on the said services
5. To whom can it be distributed?To its units and outsourced manufacturersTo supplier having the same PAN. i.e credit cannot be distributed to outsourced manufacturers or service providers.

Thus, on looking into the highlighted differences between the two regimes, distribution of credit is restricted to the office having the same PAN. The reason could be due to the shift of taxable event from manufacture to supply. The tax liability would arise at the time of supply which would be ultimately paid by ISD on the utilisation of available input tax credit.

Conditions to be fulfilled by ISD

  • Registration: Input Service Distributor has to compulsorily register as “ISD” apart from its registration under GST as a normal taxpayer. Such taxpayer has to specify under serial number 14 of the REG-01 form as an ISD. They shall be able to distribute the credit to the recipients only after this declaration.
  • Invoicing: ISD can distribute the amount of tax credit to recipients as earlier stated by issuing an ISD invoice.
  • Returns: Amount of tax credit distributed should not exceed the amount of tax credit available with the ISD as at the end of a relevant month to be filed in GSTR-6 by the 13th* of succeeding month by ISD. The ISD can get the information of the ITC from the GSTR-2B return.

The recipient of the tax credit can view the tax credit so distributed by ISD 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.

  • Restriction in the distribution of Input Tax creditThe credit of tax paid under the reverse charge mechanism is not available for distribution to the recipients. So, the ISD has to utilise such credit only as a normal taxpayer.

The credit of CGST, IGST and SGST shall be distributed, in the prescribed manner as per below chart :

ISD
  • The tax credit available against any specific input services used entirely by one of the recipients can be allocated only to that recipient for utilisation of such credit and not to other recipients.
  • The tax credit available against the input services used commonly by more than one recipients of the ISD shall be allocated to those recipients on a proportionate basis in the ratio of the turnover of all such recipients that are operational during the year. 
  • The tax credit available against the input services used commonly by all the recipients of the ISD shall be allocated to all the recipients on a proportionate basis in the ratio of the turnover of all the recipients that are operational during the year.

Recovery procedure for wrongful distribution of credit by ISD

GST Act provides that the following shall be deemed to be an inappropriate distribution of tax credit by Input Service Distributor:

  • Credit distributed to all or any recipient in excess of the amount available for distribution
  • Distributed in an inappropriate ratio to all or any recipient
  • Distributed in excess to what a supplier is entitled to and shall be recovered from such recipient(s) along with interest and the provisions of ‘Demand and Recovery’ shall apply for effecting such recovery.

Frequently Asked Questions on Input Service Distributor

Will Input Service Distributors be required to be separately registered other than the existing taxpayer registration?

Yes, the ISD registration is for one office of the taxpayer which will be different from the normal registration.   

Can credit be distributed to only revenue-generating units?

The revenue-generating units have GST liability, so rightly the ITC on those services used by them must be allocated to them to use the tax credit to set off against their tax liability.  

Can a taxpayer have multiple ISDs?

Yes. Different offices of a taxpayer can apply for ISD registration.   

Can a company have multiple ISDs?

Yes, different offices like the marketing division, security division etc. may apply for separate ISD.  

What are the consequences of credit distributed in contravention of the provisions of the Act?

The credit distributed in contravention of provisions of Act could be recovered from the recipient to which it is distributed along with interest.  

Do Input Service Distributors need to file a separate statement of outward and inward supplies with their return?

No, the ISDs need to file only a return in Form GSTR- 6 and the return has the details of credit received by them from the service provider and the credit distributed by them to the recipient units. Since their return itself covers these aspects, there is no requirement to file a separate statement of inward and outward supplies.

For a better understanding of the procedure prescribed for ISD, read our articles:

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