INPUT SERVICE DISTRIBUTOR IN GST - Handbook of GST Law & Procedures (CBIC) [October 2024] - GST

18. INPUT SERVICE DISTRIBUTOR IN GST 18.1 Input Service Distributor (ISD) means an office of the supplier of goods or services or both which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of Central tax (CGST), State tax (SGST)/Union territory tax (UTGST) or Integrated tax (IGST), paid on the said services to a supplier of taxable goods or services or both having same PAN as that of the ISD. Section 20 of the CGST Act, 2017, is the governing provision for the manner of distribution of credit by an ISD. 18.2 An ISD is required to obtain a separate registration. The threshold limit of registration is not applicable to ISD as the purpose of ISD is only distribution of input tax credit to different units of the registered taxable supplier with same PAN number. 18.3 The distribution of credit would be done through an Input Service Distributor invoice or Input Service Distributor Credit Note or any document issued by an Input Service Distributor. The said document would contain the amount of input tax credit being distributed. 18.4 The input tax credit of input services shall be distributed only amongst those registered persons who have used the input services in the course or furtherance of business. 18.5 Distribution of input tax credit would be based on a formula. Firstly, distribution would be done only amongst those recipients of input tax credit to whom the input service being distributed are attributable. Secondly, distribution would be done amongst the operational units only. Thirdly, distribution would be done in the ratio of turnover in a State or Union territory of the recipient during the period for which input service being distributed is attributable. Lastly, the credit distributed should not exceed the credit available for distribution. 18.6 ISD is required to file monthly return by 13th of the following month in FORM GSTR-6. 18.7 The distribution is to be made by an ISD as per following criteria: (a) Integrated tax as Integrated tax. (b) Central tax as Central tax (if the recipient and ISD are located in the same State) and as Integrated tax (if the recipient and ISD are not located in the same State). (c) State tax as State tax (if the recipient and ISD are located in the same State) and as Integrated tax (if the recipient and ISD are not located in the same State). (d) In case of distribution of central/state tax as integrated tax, it should be ensured that the amount distributed equals the amount of credit of Central and State tax put together. 18.8 The Input Service Distributor has to separately distribute the amount of ineligible input tax credit and the amount of eligible input tax credit. 18.9 The ITC available for distribution by an ISD should be distributed to the recipients in the same month itself. 18.10 Vide Circular No. 199/11/2023-GST dated 17th July, 2023 it has been clarified that in respect of common input services procured by the Head Office (HO) from a third party but attributable to both HO and Branch Offices (BO) or exclusively to one or more BOs, HO has an option to distribute ITC in respect of such common input services by following ISD mechanism laid down in Section 20 of CGST Act, 2017 read with Rule 39 of the CGST Rules, 2017. However, as per the present provisions of the CGST Act, 2017 and CGST Rules, 2017, HO can issue tax invoices under Section 31 of CGST Act, 2017 to the concerned BOs in respect of common input services procured from a third party and the BOs can avail ITC on the same subject to the provisions of Section 16 and 17 of CGST Act, 2017. The HO registered as ISD can distribute ITC to BOs in respect of such common input services through the ISD mechanism as per the provisions of Section 20 of CGST Act, 2017 read with Rule 39 of the CGST Rules, 2017.