Input Service Distributor under GST

Important Update 2020

On 11th April 2020, the GST Council notified regarding the data stored in Form GSTR-6 by the registered Input Service Distributors (ISD). The Council notified that any corrections made in the credit utilization criteria in Form-6 by the Input Service Distributors shall no longer be available. In other terms, if the registered Input Service Distributors stored any data in Form-6 and if the Form is in saved stage, the data will be lost and it will no longer be available to the ISD. Hence, the Council requested all the registered Input Service Distributors to re-draft Form-6. The implementation of this notification by the GST Council shall become effective from 14.04.2020.

Concept of ISD

The concept of GST input service distributor (ISD) is relevant for businesses having GST registration and operating with more than one branch within India. Under GST, businesses operating with more than one branch should obtain GSTIN for each branch from where a taxable supply is made. Further, based on the purchases of the head office or branch, input tax credit in the form of IGST or CGST and SGST would accrue to the business. In such a scenario, ensuring proper distribution of input tax credit amongst all the branches, the Government of India (GoI) introduced the concept of GST ISD concept.

What is Input Service Distributor?

Under GST, Input Service Distributor is an office of a business which receives tax invoices for input services and distributes the available input tax credit to other branch offices of the same business.

What is the requirement for Input Service Distributor?

The concept of ISD shall apply only for the entities registered under GST having multiple branches. In case of a business with multiple branches, the head office may purchase certain services commonly for all branches. In such purchases, the taxpayer should distribute the input tax credit from the purchase to various branches. In such cases, the entity can set up an input service distributor and distribute the credit of Central Tax (CGST), State tax (SGST)/ Union territory tax (UTGST) or Integrated tax (IGST) to relevant branches. Know more about GST registration for branches.

What type of input tax credit can be distributed?

An ISD can only distribute input tax credit on common invoices pertaining to input services. Therefore, an ISD can no longer distribute Input tax credit on input goods or capital goods.

How to distribute input tax credit?

To distribute input tax credit as an ISD, the following formula can be adopted: C1 = (t1÷T) × C In the formula, “C” relates to the amount of credit for distribution. “T1” is the turnover, of the taxpayer during the relevant period, and “T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable. The ISD should issue an Input Service Distributor invoice, after determining the total amount of input tax credit for distributing to each branch. The ISD invoice should also contain information detailing the total amount allotted for distribution of input tax credit. During input tax credit distribution, the ISD shall distribute the input tax credit on account of IGST as an input tax credit of IGST. Similarly, for the input tax credit on account of CGST and SGST, the ISD can distribute in the following:

If the input tax credit recipient is located in the same State as the ISD, then SGST and CGST can be distributed in the same format.
If the location of the input tax credit recipient present in a different state from the ISD, the distributor can provide the credit as IGST.

Is registration required for Input Service Distributor?

Yes, apart from GST registration, an Input Service Distributor will have to mandatorily obtain a separate registration as Input Service Distributor by applying through form GST REG-1. There is no threshold limit or criteria for registration for an ISD.

Should the Input Service Distributor file GST Return?

Yes, an ISD must distribute the input tax credit available for distribution in the same month and file FORM GSTR-6. GSTR-6 is due on the 13th of every month. In GSTR-6, the ISD must provide information on all ISD invoices issued. The details filed in GSTR-6 return will be made available to the respective recipients in their GSTR 2A. The recipients may include these in its GSTR-2 and take the input tax credit. Input Service Distributors are not be required to file GST Annual Return.

Distribution of Credit to the Wrong Recipient

In case if the ISD distributed the input tax credit wrongly, the distributor can rectify the issue by issuing a credit note to the person wrongly distributed. Also, the invoice provided by the ISD should reflect the receipt issued to the recipient for the credit. Therefore, both the documents should be reflected in GSTR-6 of the Input Service Distributor in the same month.

Recovery of Credit Distributed in Excess

The ISD can retrieve the credit along with the interest from the said recipient, in case the distributor deposited the credit in excess or to more recipients. Click here to register a Public Limited Company, Private Limited Company or Section 8 Company