Input Service Distributor in GST (ISD)
INTRODUCTION:-
The Input Service Distribution is self explainetary that the distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods). Also not applicable for Services which attract GST under RCM. Companies may have their head office at one place and units at other places which may be registered separately. The Head Office would be procuring certain services which would be for common utilization of all units across the country. The bills for such expenses would be raised on the Head Office. But the Head Office itself would not be providing any output supply so as to utilize the credit which gets accumulated on account of such input services.
Since the common expenditure is meant for the business of all units, it is but natural that the credit of input services in respect of such common invoices should be apportioned between all the consuming units. ISD mechanism enables such proportionate distribution of credit of input services amongst all the consuming units.
DEFINITION:-
“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and 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 to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.
CONDITIONS:-
a) ISD can distribute the amount of tax credit to recipients only by issuing an ISD documents (i.e ISD Invoice or Credit Note).
b) The amount of the credit distributed shall not exceed the amount of credit available for distribution.
c) The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient. (even when the unit is unregistered or makes exempt supplies).
d) The input tax credit available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6in accordance with the provisions of Chapter VIII of these rules. So deferment of the credit distribution is not allowed.
e) The Input Service Distributor shall separately distribute the amount of ineligible input tax credit (ineligible under the provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible input tax credit.
MANNER OF DISTRIBUTION OF ITC BY ISD:-
01) IGST:-
a) Recipient located in the same State or Union territory in which the Input Service Distributor is located:- Credit of IGST distributed to IGST.
b) Recipient is not located in the same State or Union territory in which the Input Service Distributor is located:- Credit of IGST distributed to IGST.
02) CGST & SGST & UTGST:-
a) Recipient located in the same State or Union territory in which the Input Service Distributor is located:-
Credit of CGST distribute to CGST.
Credit of SGST & UTGST distribute to SGST & UTGST respectively.
b) Recipient is not located in the same State or Union territory in which the Input Service Distributor is located:-
Credit of CGST & SGST & UTGST distributed to IGST Only.
COMPUTATION:-
Formula:- C1 = (t1÷T) × C
where,
“C” = The amount of credit to be distributed,
“t1” = Turnover of the specific recipient during the relevant period, and
“T” = The aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable.
Explanation:-
“Relevant period” shall be:-
i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year.
ii) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed.
‘turnover’’ means:-
the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied.
DEBIT NOTE OR CREDIT NOTE:-
1) Issue of debit note:-
If any debit note is issued to the ISD by the supplier of service, the additional credit of tax that he gets on such debit note should be distributed by him in the month in which he includes the Debit note in GSTR-6.
2) Issue of credit note:-
If any credit note is issued to the ISD by the supplier of service, the credit of tax that gets reduced in such credit note should be apportioned by him to the recipients in the same proportion as the original credit that was distributed. Such apportioned credit gets reduced from the credit of tax distributed in the month in which the credit note is included in GSTR-6. However, if the amount to be reduced exceeds amount of tax credit to be distributed, then such excess shall be added to the output tax liability of the Recipient.
TAX INVOICE:-
A) Points to include in the Invoices by ISD – (For ISD Invoice and ISD credit note)
1) Name, address and Goods and Services Tax Identification Number of the Input Service Distributor.
2) A consecutive serial number not exceeding sixteen characters.
3) Date of its issue.
4) Name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed.
5) Amount of the credit distributed.
6) Signature or digital signature of the Input Service Distributor or his authorised representative.
B) Where the supplier of taxable service is an insurer or a banking company or a financial institution, including a non-banking financial company, the said supplier may issue a consolidated tax invoice or any other document in lieu thereof, by whatever name called, whether issued or made available, physically or electronically whether or not serially numbered, and whether or not containing the address of the recipient of taxable service but containing other information as mentioned under rule 46.
C) Where the supplier of taxable service is a goods transport agency supplying services in relation to transportation of goods by road in a goods carriage, the said supplier shall issue a tax invoice or any other document in lieu thereof, by whatever name called, containing the gross weight of the consignment, name of the consigner and the consignee, registration number of goods carriage in which the goods are transported, details of goods transported, details of place of origin and destination, Goods and Services Tax Identification Number of the person liable for paying tax whether as consigner, consignee or goods transport agency, and also containing other information as mentioned under rule 46.
D) Where the supplier of taxable service is supplying passenger transportation service, a tax invoice shall include ticket in any form, by whatever name called, whether or not serially numbered, and whether or not containing the address of the recipient of service but containing other information as mentioned under rule 46.
REGISTRATION:-
a) Input Service Distributor has to compulsorily register as “ISD” apart from its registration as a normal taxpayer under the Act, wherein he has to specify under serial number 14 of the REG-01 form as an ISD. Only then he shall be able to distribute the credit to the recipients.
b) It is possible for different offices of a company to have separate registrations as ISD. In other words, a company can have multiple registrations for its offices as ISD.
RETURNS:-
ISD have to file GSTR-06 by the 13th of the month succeeding the relevant month indicating the credit distributed for the relevant month to the recipient units and the ISD invoices issued in the relevant month.
CONCLUSION:-
Thus the concept of ISD is a facility made available to business having a large share of common expenditure and billing/payment is done from a centralized location. The mechanism is meant to simplify the credit taking process for entities and the facility is meant to strengthen the seamless flow of credit under GST.
The Input Service Distribution is self explainetary that the distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods). Also not applicable for Services which attract GST under RCM. Companies may have their head office at one place and units at other places which may be registered separately. The Head Office would be procuring certain services which would be for common utilization of all units across the country. The bills for such expenses would be raised on the Head Office. But the Head Office itself would not be providing any output supply so as to utilize the credit which gets accumulated on account of such input services.
Since the common expenditure is meant for the business of all units, it is but natural that the credit of input services in respect of such common invoices should be apportioned between all the consuming units. ISD mechanism enables such proportionate distribution of credit of input services amongst all the consuming units.
DEFINITION:-
“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and 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 to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.
CONDITIONS:-
a) ISD can distribute the amount of tax credit to recipients only by issuing an ISD documents (i.e ISD Invoice or Credit Note).
b) The amount of the credit distributed shall not exceed the amount of credit available for distribution.
c) The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient. (even when the unit is unregistered or makes exempt supplies).
d) The input tax credit available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6in accordance with the provisions of Chapter VIII of these rules. So deferment of the credit distribution is not allowed.
e) The Input Service Distributor shall separately distribute the amount of ineligible input tax credit (ineligible under the provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible input tax credit.
MANNER OF DISTRIBUTION OF ITC BY ISD:-
01) IGST:-
a) Recipient located in the same State or Union territory in which the Input Service Distributor is located:- Credit of IGST distributed to IGST.
b) Recipient is not located in the same State or Union territory in which the Input Service Distributor is located:- Credit of IGST distributed to IGST.
02) CGST & SGST & UTGST:-
a) Recipient located in the same State or Union territory in which the Input Service Distributor is located:-
Credit of CGST distribute to CGST.
Credit of SGST & UTGST distribute to SGST & UTGST respectively.
b) Recipient is not located in the same State or Union territory in which the Input Service Distributor is located:-
Credit of CGST & SGST & UTGST distributed to IGST Only.
COMPUTATION:-
Formula:- C1 = (t1÷T) × C
where,
“C” = The amount of credit to be distributed,
“t1” = Turnover of the specific recipient during the relevant period, and
“T” = The aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable.
Explanation:-
“Relevant period” shall be:-
i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year.
ii) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed.
‘turnover’’ means:-
the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied.
DEBIT NOTE OR CREDIT NOTE:-
1) Issue of debit note:-
If any debit note is issued to the ISD by the supplier of service, the additional credit of tax that he gets on such debit note should be distributed by him in the month in which he includes the Debit note in GSTR-6.
2) Issue of credit note:-
If any credit note is issued to the ISD by the supplier of service, the credit of tax that gets reduced in such credit note should be apportioned by him to the recipients in the same proportion as the original credit that was distributed. Such apportioned credit gets reduced from the credit of tax distributed in the month in which the credit note is included in GSTR-6. However, if the amount to be reduced exceeds amount of tax credit to be distributed, then such excess shall be added to the output tax liability of the Recipient.
TAX INVOICE:-
A) Points to include in the Invoices by ISD – (For ISD Invoice and ISD credit note)
1) Name, address and Goods and Services Tax Identification Number of the Input Service Distributor.
2) A consecutive serial number not exceeding sixteen characters.
3) Date of its issue.
4) Name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed.
5) Amount of the credit distributed.
6) Signature or digital signature of the Input Service Distributor or his authorised representative.
B) Where the supplier of taxable service is an insurer or a banking company or a financial institution, including a non-banking financial company, the said supplier may issue a consolidated tax invoice or any other document in lieu thereof, by whatever name called, whether issued or made available, physically or electronically whether or not serially numbered, and whether or not containing the address of the recipient of taxable service but containing other information as mentioned under rule 46.
C) Where the supplier of taxable service is a goods transport agency supplying services in relation to transportation of goods by road in a goods carriage, the said supplier shall issue a tax invoice or any other document in lieu thereof, by whatever name called, containing the gross weight of the consignment, name of the consigner and the consignee, registration number of goods carriage in which the goods are transported, details of goods transported, details of place of origin and destination, Goods and Services Tax Identification Number of the person liable for paying tax whether as consigner, consignee or goods transport agency, and also containing other information as mentioned under rule 46.
D) Where the supplier of taxable service is supplying passenger transportation service, a tax invoice shall include ticket in any form, by whatever name called, whether or not serially numbered, and whether or not containing the address of the recipient of service but containing other information as mentioned under rule 46.
REGISTRATION:-
a) Input Service Distributor has to compulsorily register as “ISD” apart from its registration as a normal taxpayer under the Act, wherein he has to specify under serial number 14 of the REG-01 form as an ISD. Only then he shall be able to distribute the credit to the recipients.
b) It is possible for different offices of a company to have separate registrations as ISD. In other words, a company can have multiple registrations for its offices as ISD.
RETURNS:-
ISD have to file GSTR-06 by the 13th of the month succeeding the relevant month indicating the credit distributed for the relevant month to the recipient units and the ISD invoices issued in the relevant month.
CONCLUSION:-
Thus the concept of ISD is a facility made available to business having a large share of common expenditure and billing/payment is done from a centralized location. The mechanism is meant to simplify the credit taking process for entities and the facility is meant to strengthen the seamless flow of credit under GST.
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