Input Service Distributors
Understanding Input Service Distributor (ISD) Under GST
In this post, We will go over the role of an Input Service Distributor (ISD) under GST, its importance, the registration process, and how input tax credit is allocated. We will also discuss scenarios in which ISD is not applicable, qualifying requirements, and significant distinctions between ISD and regular taxpayers.
Let’s look at each section in detail:
- What is an input service distributor (ISD) under GST?
- Importance of Input Service Distributor
- Registration of input service distributor under GST
- Situations where ISD is not applicable
- What are the Eligibility Criteria for ISD?
- How is Input Tax Credit Under GST Distributed?
- Differences Between Regular Taxpayers and ISDs
- FAQs
What is an input service distributor (ISD) under GST?
An input service distributor (ISD) is a taxpayer who collects invoices for services utilized by its branches and distributes the Input Tax Credit (ITC) to them. ISD invoices are used to accomplish this proportionally. While the branches may have different GSTINs, they must all have the same PAN as the ISD.
Importance of Input Service Distributor
The ISD mechanism is necessary because:
- Easy Credit Distribution: It helps businesses allocate input tax credits from centrally incurred services to different branches, reducing tax burden effectively.
- Ensures Compliance: It ensures businesses follow GST rules by correctly recording credit distribution.
- Smooth Credit Flow: It enables credit to transfer easily across units, increasing total efficiency.
Registration of input service distributor under GST
To register as an Input Service Distributor (ISD) for GST, do these steps:
- Get a separate ISD registration: Apply for ISD registration using the same PAN, but as a separate organization.
- Submit Form GST REG-01: Fill out and submit this form online with the required information and documents.
- List the units receiving credit: Provide information about all business units that will get the distributed input tax credit.
- Keep proper records: Maintain accurate credit distribution records to ensure compliance and efficient tax administration.
Situations where ISD is not applicable
The Input Service Distributor (ISD) cannot deliver the input tax credit (ITC) under the following cases:
- Credit for Input Goods or Capital Goods: ISD can only provide credit for input services, not products or capital goods.
- Services Not Used by the Recipient: Credit can only be given if the receiver utilizes the service. If not, ISD distribution is not permitted.
- Entities with Different PANs: ISD can only distribute credit to companies registered with the same PAN.
- Distribution Outside India: Credit cannot be transferred to companies outside India.
- GST Registration Requirement: For credit distribution, both the ISD and the recipient must be GST-registered.
- Non-Taxable Persons:Only taxable persons under GST are eligible for ISD credit distribution.
- Use for Other Than Input Services: ISD is only applicable to input services; credit for products or capital goods requires different methods.
What are the Eligibility Criteria for ISD?
To qualify as an Input Service Distributor (ISD) under GST, you must meet the following criteria:
- Registration: Apart from being a standard GST taxpayer, the company must also register as an ISD. This is done by indicating the serial number 14 on the REG-01 form. Once registered as an ISD, the firm may distribute input tax credit (ITC) to its branches or units.
- Invoicing: The tax credit is distributed to recipients via an ISD invoice. This invoice serves as evidence that the credit was distributed.
- Returns: The ISD should ensure the tax credit distributed does not exceed the available credit at the end of the applicable month. This information is entered in the GSTR-6 return, which is due by the 13th of the following month. The ISD can obtain ITC information from the GSTR-2B return. Recipients can view the distributed credit in GSTR-6A, which is pre-filled with the ISD’s return. The recipient can then claim the credit by filing a GSTR-3B form. Notably, an ISD is not needed to submit an annual return in GSTR-9.
- Restrictions: ITC for taxes paid under the reverse charge technique cannot be distributed to recipients. These credits can only be used by the ISD as a regular taxpayer.
How is Input Tax Credit Under GST Distributed?
The distribution of Input Tax Credit (ITC) under GST follows the following rules:
- Suppose a single recipient uses all input services. In that case, the ITC must be designated to that recipient and cannot be shared with others.
- If many recipients use the input services, the ITC should be distributed according to their total revenue during the financial year.
- The ITC must be allocated proportionally based on their annual turnover for standard input services used by all recipients.
Differences Between Regular Taxpayers and ISDs
Aspect | Regular taxpayers | Input service distributor |
ITC claiming | Claims ITC directly related to purchases | Distributes ITC for services incurred centrally |
Compliance requirements | Standard GST compliance | Specific components for ISD, including GSTR-6 |
Outward supplies | Engages in outward supplies | No outward supplies; only distributors ITC |
This brings an end to this post. If you have any questions or comments, please use the space below, and we will be pleased to answer them.
FAQs
1. Can a taxpayer have several ISDs?
Ans: Yes. Different taxpayer offices may apply for ISD registration.
2. Can a firm have many ISDs?
Ans: Different offices, like the marketing and security divisions, may apply for separate ISD.
3. What are the possible consequences of distributing credit in violation of the Act's provisions?
Ans: Credit distributed in violation of the Act’s restrictions may be recovered from the recipient, along with any relevant interest.
4. Can credit only be issued to revenue-generating units?
Ans: Revenue-generating units have a GST liability, hence the ITC for services used should be allocated. This allows them to use the tax credit to properly offset their GST liability.
