Input Service Distributor (ISD) under GST

Definition of ISD

  • As per Section 2(61) of CGST Act, 2017, “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.

  • Hence, from the definition, under GST, Input Service Distributor (ISD) 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.

Registration under GST

An ISD is required to obtain a separate registration. The registration is mandatory and there is no threshold limit for registration for an ISD. Businesses who are already registered as an ISD under the existing regime (i.e. under Service Tax), will be required obtain a new ISD registration under GST. This is because, the existing ISD registration will not be migrated to the GST regime.

Relevance of ISD

ISD,under GST is relevant for businesses having multiple branches operating within India. These businesses are required to obtain GSTIN for each branch from where taxable supply is made. Based on the purchases of the head office or branch, ITC(Input Tax Credit) in the form of SGST,CGST or IGST would accrue to the business. Here, to ensure that the ITC is properly distributed amongst the various branches of the business, ISD concept has been introduced by the Government as defined below.

Need for ISD

ISD is made available to business having a large share of common expenditure and billing/payment is done from a centralised 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.

Where ISD doesn’t apply

ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services. It is not applicable when input or capital goods are involved.

Ratio of Credit distribution by ISD

The credit has to be distributed only to the unit to which the supply is directly attributable to. If input services are attributable to more than one recipient of credit, the distribution shall be in the pro-rata basis of turnover in the State/Union Territory. For example, if an ISD has 4 units across the country. However, if a particular input service pertains exclusively to only one unit and the bill is raised in the name of ISD, the ISD can distribute the credit only to that unit and not to other units. If the input services are common for all units, then it will be distributed according to the ratio of turnover of all the units.

Returns Filing by ISD

As per Rule 65 of the CGST Rules 2017,every ISD will have to file monthly returns in GSTR-6 within thirteen days after the end of the month and will have to furnish information of all ISD invoices issued. The details in the returns will be made available to the respective recipients in their GSTR 2A. The recipients may include these in its GSTR-2 and take credit. An ISD shall not be required to file Annual return. An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism. This is because the ISD mechanism is only to facilitate distribution of credit of taxes paid. The ISD itself cannot discharge any tax liability (as person liable to pay tax) and remit tax to government account. If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as Normal taxpayer.