Manner of distribution of credit by Input Service Distributor [ Section 20 of CGST Act read with Rule 39 ] - GST Ready Reckoner - GST

Manner of distribution of credit by Input Service Distributor After Substitution [ Section 20 w.e.f. 01/04/2025 substituted vide Finance Act, 2024 of CGST Act Read with rule 39 of the CGST Rules Substituted vide Notification No. 12/2024 Central Tax dated 10-07-2024 effective date to be notified ] (1) An Input Service Distributor shall distribute input tax credit in the manner and subject to the following conditions, namely: (a) 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-6 in accordance with the provisions of Chapter VIII of these rules; (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; (d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period; (e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period; (f) the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) to one of the recipients R1 , whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipients who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, C1 , to be calculated by applying the following formula - C 1 = (t 1 / T) x C where, C is the amount of credit to be distributed, t 1 is the turnover, as referred to in clause (d) and (e), of person R1 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 in accordance with the provisions of clause (d) and (e); (g) the Input Service Distributor shall, in accordance with the provisions of clause (d) and (e), separately distribute the amount of ineligible input tax credit (ineligible under the provisions of section 17(5) or otherwise) and the amount of eligible input tax credit; (h) the input tax credit on account of central tax, State tax, Union territory tax and integrated tax shall be distributed separately in accordance with the provisions of clause (d) and (e); (i) the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient; (j) the input tax credit on account of central tax and State tax or Union territory tax shall (i) 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; (ii) 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 as referred to in clause (d) and (e); (k) the Input Service Distributor shall issue an Input Service Distributor invoice, as provided in rule 54(1), clearly indicating in such invoice that it is issued only for distribution of input tax credit; (l) the Input Service Distributor shall issue an Input Service Distributor credit note, as provided in rule 54(1), for reduction of credit in case the input tax credit already distributed gets reduced for any reason; (m) any additional amount of input tax credit on account of issuance of a debit note to an Input Service Distributor by the supplier shall be distributed in the manner and subject to the conditions specified in clauses (a) to (j) and the amount attributable to any recipient shall be calculated in the manner provided in clause (f) and such credit shall be distributed in the month in which the debit note is included in the return in FORM GSTR-6 ; (n) any input tax credit required to be reduced on account of issuance of a credit note to the Input Service Distributor by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed in terms of clause (f), and the amount so apportioned shall be- - (i) reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR-6 ; or - (ii) added to the output tax liability of the recipient where the amount so apportioned is in the negative by virtue of the amount of credit under distribution being less than the amount to be adjusted. (1A) For the distribution of credit in respect of input services, attributable to one or more distinct persons, subject to levy of tax under section 9(3) or (4), a registered person, having the same PAN and State code as an Input Service Distributor, may issue an invoice or, as the case may be, a credit or debit note as per the provisions of rule 54(1A) to transfer the credit of such common input services to the Input Service Distributor, and such credit shall be distributed by the said Input Service Distributor in the manner as provided in rule 39(1) . [ Section 20(1) Rule 39(1A) ] (2) If the amount of input tax credit distributed by an Input Service Distributor is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the Input Service Distributor, the process specified in clause (n) of rule 39(1) shall apply, mutatis mutandis, for reduction of credit. (3) Subject to rule 39(2) , the Input Service Distributor shall, on the basis of the Input Service Distributor credit note specified in clause (l) of rule 39(1) , issue an Input Service Distributor invoice to the recipient entitled to such credit and include the Input Service Distributor credit note and the Input Service Distributor invoice in the return in FORM GSTR-6 for the month in which such credit note and invoice was issued. For the purpose of this rule, (i) Relevant period shall be (a) 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; or (b) 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; (ii) Recipient of credit means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor; (iii) 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 under entries 84 and 92A of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule. Note :- - Entry 84: - Duties of excise on all excisable goods manufactured or product in India - Entry 92A: - Tax on inter-state sale (CST) - Entry 51: - State Excise duty on liquor, opium etc. - Entry 54: - Taxes on the sale or purchase of goods other than state supply Before Substitution Manner of distribution of credit by Input Service Distributor [ Section 20 upto 31.03.2025 of CGST Act Read with rule 39 of the CGST Rules ] The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed under rule 39 of CGST Rules . Distribution in same month :- The input tax credit available for distribution in a month shall be distributed in the same month. An ISD will have to file monthly returns in GSTR-6 within 13 days after the end of the month. [ Rule 39(1)(a) ] Ineligible or eligible ITC to be distributed separately:- An ISD shall separately distribute the amount of eligible input tax credit and the amount of ineligible input tax credit (under the provisions of section 17(5) or otherwise). the input tax credit on account of central tax, State tax, Union territory tax and integrated tax shall be distributed separately in accordance with the provisions of clause (d); Distribution of credit on the basis of turnover[ Rule 39(1) clause (d) of CGST Rules] :- the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) of section 20(2) to one of the recipients R1 , whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipient(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, C1 , to be calculated by applying the following formula - C 1 = (t 1 T) C where, C is the amount of credit to be distributed, t 1 is the turnover , as referred to in section 20, of person R1 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 in accordance with the provisions of section 20; The input tax credit on account of central tax and State tax or Union territory tax in respect of recipient located in the same state shall be distributed as central tax and State tax or Union territory tax respectively. The input tax credit on account of central tax and State tax or Union territory tax shall, in respect of a recipient located in a State or Union territory other than that of the ISD, 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. The input tax credit on account of integrated tax shall be distributed as integrated tax. The Input Service Distributor may distribute the credit subject to the following conditions, namely:- An ISD has to issue an ISD invoice, as prescribed in rule 54 of the CGST Rules, 2017 , clearly indicating in such invoice that it is issued only for distribution of input tax credit. the amount of the credit distributed shall not exceed the amount of credit available for distribution; the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient; the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period , to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period; the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period. Other Legal provisions 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. If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as Normal taxpayer. 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. Turnover , shall bein 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 under entries 84 and 92A of List I of the Seventh Schedule to the Constitution and under entries 51 and 54 of List II of the Seventh Schedule to the Constitution. Note :- Entry 84: - Duties of excise on all excisable goods manufactured or product in India Entry 92A: - Tax on inter-state sale (CST) Entry 51: - State Excise duty on liquor, opium etc. Entry 54: - Taxes on the sale or purchase of goods other than state supply Relevant period shall be 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; 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.