CONCEPT OF INPUT SERVICE DISTRIBUTOR (ISD)

What is Input Service Distributor (ISD)?

As per Section 2(61) of CGST Act, “Input Service Distributor” has following characteristics:

Ø     It is an office of the supplier of goods or services or both.

Ø     It receives tax invoices issued under section 31 towards the receipt of input services.

Ø     It 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.

Ø     Such document is issued to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.

Registration Requirement for Input Service Distributor (ISD)

Section 24 of the CGST Act (read with Rule 8 of CGST Rules, 2017), requires an office of the supplier which intends to act as Input Service Distributor (ISD), to separately obtain registration as ISD.

Returns for Input Service Distributor (ISD)

Input Service Distributor is required to file monthly return in Form GSTR -6. Due date to file this return is 13th of Next month.

Manner of Distribution of Input Tax Credit by Input Service Distributor (ISD)

Rule 39 of CGST Rules prescribe the manner of distribution of ITC by ISD. This rule states:

Ø    the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient;

Ø    in respect of a recipient located in the same State or Union territory in which the Input Service Distributor is located, be distributed as input tax credit of central tax and State tax or Union territory tax respectively;

Ø    in respect of a recipient located in a State or Union territory other than that of the Input Service Distributor, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient.

     We can understand the above rule with the help of an example:

      XYZ Ltd. is a Company registered in 5 states viz Delhi, Maharashtra, Kerala, Telangana, and Haryana. XYZ Ltd. has separate ISD registration in Delhi. ITC received by XYZ Ltd. in ISD is as under:

Nature of Expense	IGST (Amount)	CGST & SGST (Amount)
Audit Fee	15,000	NIL
Marketing Exp.	NIL	15,000

Let us assume that turnover ratio of above state is 5:4:3: 2:1.

Note: Turnover Ratio for distribution of ITC is calculated on the basis of turnover of last Financial Year. 

Now, ISD unit registered in Delhi will distribute the above ITC in the following manner:

    (i) ITC of Audit Fee i.e. IGST Rs. 15,000 will be distributed as:

State	IGST	CGST	SGST
Delhi	5,000	-	-
Maharashtra	4,000	-	-
Kerala	3,000	-	-
Telangana	2,000	-	-
Haryana	1,000	-	-

    

(ii) ITC of Marketing Exp. i.e. CGST & SGST Rs. 15,000 will be distributed as:

State	IGST	CGST	SGST
Delhi	-	2,500	2,500
Maharashtra	4,000	-	-
Kerala	3,000	-	-
Telangana	2,000	-	-
Haryana	1,000	-	-

 

SOURCE : CGST Act,2017 read with CGST Rules,2017

Disclaimer : TAXGyaAan is meant purely for the educational purpose of Tax Laws and Regulatory Updates. It will not be treated as professional advice. This Blog should not be substituted for professional advice. For specific Queries, please post in the comments section.