Updated on: Jul 14th, 2023
10 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.
50th GST Council Meeting
In the 50th GST Council meeting, the Council recommended that a Circular be issued to clarify that the Input Services Distributor (ISD) mechanism will not be mandatory in certain cases for the distribution of input tax credit (ITC) of common input services procured from third parties to distinct persons as per the present provisions of the GST law.
*The decision will apply once the relevant Circular is issued by the CBIC.
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.
ISD cannot distribute the input tax credit in the following cases:
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.
|Point of |
|Earlier Regime||GST Regime|
|1. Who can be an Input service distributor?||An office of the manufacturer or producer of final products or provider of output service||An office of the supplier of goods and/or services|
|2. Document based on which credit can be distributed||Receives invoices issued under rule 4A of Service Tax Rules, 1994 towards the purchase of input services||Receives 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 distributed||The credit of service tax paid on the said services||The 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 manufacturers||To 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.
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.
GST Act provides that the following shall be deemed to be an inappropriate distribution of tax credit by Input Service Distributor:
Yes, the ISD registration is for one office of the taxpayer which will be different from the normal registration.
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.
Yes. Different offices of a taxpayer can apply for ISD registration.
Yes, different offices like the marketing division, security division etc. may apply for separate ISD.
The credit distributed in contravention of provisions of Act could be recovered from the recipient to which it is distributed along with interest.
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: