Input Service Distributor

Input Service Distributor (ISD)


In order to distribute the credit for the 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 with the same Permanent Account Number as that of the said office, the term “Input Service Distributor” is used. This term refers to an office of the supplier of goods or services or both that receives tax invoices issued under section 31 towards the receipt of input services.

ISD Mechanism under GST:

The ISD mechanism is meant solely for the distribution of input tax credits on common invoices for services and not for goods (inputs or capital goods). Companies may have a headquarters in one location and units in other locations that are registered separately. Certain services would be procured by the headquarters to be used by all of the country’s units. Such expenditures would be billed to the headquarters. However, the top Office would not be supplying any output in order to utilize the credit accumulated as a result of such input services.

Since the common expenses are intended for the business of all units, it’s only natural that the credit of input services for such common invoices be divided among all consuming units. The ISD mechanism permits this proportional distribution of input service credit among all consuming units.

Threshold limit for ISD:

An ISD is going to be required to obtain a separate registration as an ISD by submitting Form GST REG-1. There’s no minimum registration requirement for an ISD. Other locations are often registered independently. Since the services pertain to other locations, the corresponding credit should be transferred to those locations (which have separate registrations) where the output services are being provided.

ISD Invoice:

For the needs of distributing the input tax credit, an ISD must issue an ISD invoice in accordance with rule 54(1) of the CGST Rules, 2017, with a transparent indication that it is issued solely for the distribution of input tax credit. The input decrease that is available for distribution in a given month must be distributed in the same month, and therefore the details must be reported on Form GSTR-6.

In addition, an ISD must distribute separately both the quantity of ineligible and eligible input tax credits. Within the case of a recipient located in the same state, the input decrease on account of central tax and State tax or UT tax shall be allocated as central tax and State tax or UT tax, respectively. In respect of a recipient located during a State or Union territory other than that of the ISD, the input decrease on account of central tax and State tax or UT tax shall be distributed as integrated tax in an amount equal to the sum of the input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient. The input decrease attributable to the integrated tax must be allocated as integrated tax.

The corporate headquarters of ABC Ltd. is found in Bangalore, while its locations for selling and servicing goods are in Bangalore, Chennai, Mumbai, and Kolkata. All locations utilize software licenses and maintenance, but invoices for these services (indicating CGST and SGST) are received at the company Office. Since the software is employed at all four locations, the input decrease cannot be claimed for all services in Bangalore. The identical item must be distributed to all or any four locations. Due to this, the Bangalore Corporate office must function as the ISD for credit distribution.

If the company office of ABC Ltd, an ISD located in Bangalore, receives invoices indicating Rs. 4 lakh of Central tax, Rs.4 lakhs of State tax, and Rs. 7 lakh of integrated tax, it can distribute Rs. 15 lakh of central tax, Rs.4 lakhs of State tax, and Rs.7 lakh of integrated tax as credit of integrated tax amongst its locations in Bangalore, Chennai, Mumbai, and Kolkata via an ISD invoice containing the quantity of credit distributed.

Distribution of Input Credit Ratio:

The credit must only be distributed to the unit to which the availability is directly attributable. If input services are due to more than one credit recipient, the allocation shall support the proportional turnover in the State/Union Territory. as an example, if an ISD has four units across the state. Nevertheless, if a specific input service pertains exclusively to one unit and the bill is raised in the name of ISD, the ISD may only distribute the credit thereto unit and not to other units. If the input services are shared by all units, they’re going to be allocated based on their respective turnover ratios.

Illustration: M/s XYZ Ltd, headquartered in Mumbai, is registered as an ISD. it’s three operational units in different states, namely Mumbai, Jabalpur, and Delhi, within the current year. M/s XYZ Ltd provides the knowledge below for the month of July 2021 and requests permission to distribute the input tax credit to various units.

The following are the units’ 2019-20 fiscal year total revenues:

UnitTurnover (Rs.)
Total Turnover of three unitsRs. 10, 00, 00,000
Turnover of Mumbai unitRs. 5, 00, 00,000 (50%)
Turnover of Jabalpur unitRs. 3, 00, 00,000 (30%)
Turnover of Delhi unitRs. 2, 00, 00,000 (20%)

Distribution on a proportional basis to all or any operational units in the current year.

ParticularsTotal Credit Available (Rs)Mumbai Unit Credit (Rs)Jabalpur Unit Credit (Rs)Delhi Unit Credit (Rs)
CGST paid on services used onlyfor Mumbai Unit.3, 00, 0003, 00, 000NilNil
IGST, CGST & SGST paid on services used in all units.

Distribution on pro rata basis toall the units which are operational in the current year.
12, 00, 0006, 00, 0003, 60, 0002, 40, 000
Total15, 00, 0009, 00, 0003, 60, 0002, 40, 000

Enrollment as an ISD:

The Application for Registration is identical for Normal Taxpayer, Composition, Casual Taxable Person, Input Service Distributor (ISD), SEZ Developer, and SEZ Unit. Only requirement is to pick as in the Input Service Distributor section of the registration section.

Returns for ISD:

An ISD must file monthly returns in GSTR-6 within thirteen days of the top of the month and provide details on all ISD invoices issued. In their GSTR 2A, the recipients will have access to the knowledge contained in the returns. An ISD isn’t required to submit an annual return. An ISD is unable to simply accept invoices on which tax is to be refunded through the reverse charge mechanism. this is often because the ISD mechanism’s sole purpose is to facilitate the distribution of tax credit. The ISD cannot discharge its own liabilities (as a taxable person) and remit tax to the government account. If ISD wishes to simply accept reverse charge supplies, it must register separately as a traditional taxpayer.

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