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TMI BlogHandbook on Input Service Distributor (ISD) under GST- As Amended till FY 2024–25X X X X Extracts X X X X X X X X Extracts X X X X ..... Handbook on Input Service Distributor (ISD) under GST- As Amended till FY 2024–25 X X X X Extracts X X X X X X X X Extracts X X X X ..... portionately to the concerned GSTINs. the law introduces the Input Service Distributor (ISD) mechanism. ISD allows an organization to centrally receive invoices for input services and then distribute the corresponding ITC to respective units in a proportionate and compliant manner, thereby ensuring efficient credit flow and minimizing compliance risks. 1.2 What is an ISD? "Input Service Distributor" means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9 of CGST Act, 2017 or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20; 💡 Simplified Explanation: An Input Service Distributor (ISD) is a central office or head office or any other office of a business that: * Receives invoices for input services (like audit fees, software subscriptions, etc.) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat are used by multiple branches. * Does not use the services directly, but acts as a pass-through channel to distribute the Input Tax Credit (ITC) to various GST registrations (GSTINs) of the same company. * Issues an ISD invoice to distribute credit without charging GST, and files monthly returns in GSTR-6. 1.3 Evolution of Legal Framework Initially, ISD was an optional mechanism, and businesses often used cross charge for internal distribution of ITC. However, to bring uniformity and plug revenue leakages, the government issued: Notification No. 16/2024 - Central Tax dated 06.08.2024 "With effect from April 1, 2025, any person having multiple GST registrations under the same PAN and receiving input services centrally shall mandatorily register as an ISD for the purpose of distributing input tax credit." It was further clarified in: Circular No. 199/11/2023-GST: "From 01.04.2025 onwards, the distribution of ITC of centrally procured input services among multiple GSTINs shall be mandatorily routed through the Input Service Distributor mechanism." Chapter 2: Input Service Distributor (ISD) 2.1 Eligibility and Scope You qualify to register as an ISD if: * You have mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than one GST registration (GSTINs under a common PAN). * You receive invoices for input services centrally. * The services are used by multiple branches or GST registrations. Common examples of services that require ISD: * Audit fees * Software licenses * Advertising and media services * Legal consultancy * Cloud hosting * ERP implementation 2.2 Legal Framework and Governing Provisions * Section 2(61) - Defines what constitutes an ISD. * Section 20 - Governs the method of credit distribution among units. * Rule 39 of CGST Rules, 2017 - Lays down compliance rules for credit distribution. * Rule 54(1) - Specifies format and requirements of ISD invoices. 2.3 ISD Registration - Mandatory from 01.04.2025 As per Notification No. 16/2024 - Central Tax, from April 1, 2025, it is mandatory to obtain separate ISD registration if you receive common input service invoices for distribution among multiple GSTINs. 📌 Important: * No threshold limit (i.e., it is mandatory regardless of turnover). * You must register via Form GST REG-01 and select "ISD" at Serial No. 14. * The ISD cannot supply goods or services or raise tax invoices - it is used only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribute ITC. 2.4 Conditions for Credit Distribution As per Section 20 of CGST Act and Rule 39, the following conditions apply: ✅ Credit must be distributed in the same month as received ✅ Distribution must be proportionate to the turnover of recipient units ✅ Credit must be distributed as per location: 2.5 Format of ISD Invoice (Rule 54(1)) The invoice must contain the following details: * Name, address, and GSTIN of ISD * A unique serial number (up to 16 characters) * Date of issue * Name, address, and GSTIN of recipient branch * Amount of credit distributed * Signature or digital signature ⚠️ No GST is levied on ISD invoice - it's not a supply document. 2.6 Filing Return - GSTR-6 ISD must file GSTR-6 by 13th of the following month, detailing: * Credit received on input services (auto-populated via GSTR-6A) * Credit distributed to branches * Adjustments, if any (due to excess or wrong distribution) Recipient GSTINs will see this ITC reflected in their GSTR-2B for claiming in GSTR-3B. 2.7 Consequences of Non-Compliance Penalties: * Section 73/74 recovery with interest @ 18% p.a. * General penalty under Section 125 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to Rs.25,000 * Blocking of ITC for recipient units Chapter 3: Frequently Asked Questions (FAQ) Q1. Is ISD registration mandatory from April 1, 2025? Yes. As per Notification No. 16/2024 - Central Tax dated 06.08.2024, any business that receives common input services for multiple GSTINs is mandatorily required to register as an ISD starting April 1, 2025. Q2. Can input tax credit of goods or capital goods be distributed via ISD? No. As per Section 2(61), only input services are eligible to be distributed through ISD. Goods and capital goods are excluded. Q3. Can credit be distributed to GSTINs in different states? Yes. When the recipient GSTIN is in a different state than the ISD, the credit must be distributed as IGST. Q4. What is the penalty for not registering as an ISD despite receiving common input service invoices? Distributing credit without ISD registration is a non-compliance that may lead to: * Recovery of ITC under Section 73/74 * Interest @18% p.a. * Penalty under Section 122 or 125 of CGST Act Q5. What if ISD invoices are wrongly raised or excess credit is distributed? * You must issue debit or credit notes to adjust. * Corrections must reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in GSTR-6 and GSTR-2B. * Ensure accurate distribution to avoid audit objections. Q6. Can I file a NIL GSTR-6 if there is no credit to distribute? Yes. If there are no input services to distribute in a month, a NIL GSTR-6 should still be filed to stay compliant. Q7. Can ISD distribute credit received in one month in a later month? No. As per Rule 39, credit received in a month must be distributed within that same month. Delays can lead to mismatch and reversal risks. Q8. Can ISD invoices be shown in GSTR-1 or GSTR-3B? No. ISD invoices are not taxable outward supplies, hence they are not reported in GSTR-1 or GSTR-3B of the ISD. They are shown only in GSTR-6. Chapter 4: Case Study - Practical Illustration Company Profile: ABC Ltd. * Head Office (ISD Location): Mumbai, Maharashtra * Other GSTINs: Delhi, Bengaluru, Kolkata * Nature of Common Input Service: ERP software license procured centrally * Vendor: SAP India Pvt. Ltd. * Invoice Amount: Rs.30,00,000 + 18% GST = Rs.5,40,000 Step-by-Step Process of ITC Distribution Step 1: Vendor Invoice * SAP India issues an invoice for Rs.5,40,000 IGST to ABC Ltd., Mumbai (ISD GSTIN) Step 2: Determine Turnover Ratios Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation Monthly Turnover (Rs.) Share (%) Mumbai (ISD) 1,00,00,000 50% Delhi 60,00,000 30% Bengaluru 40,00,000 20% Total 2,00,00,000 100% Step 3: Calculate ITC to be Distributed Recipient GSTIN Credit to be Distributed Tax Type Mumbai (Same State) Rs.2,70,000 CGST+SGST (Rs.1,35k + Rs.1,35k) Delhi (Other State) Rs.1,62,000 IGST Bengaluru (Other State) Rs.1,08,000 IGST Step 4: Issue ISD Invoices * Mumbai: Issue ISD invoice for Rs.1,35,000 CGST + Rs.1,35,000 SGST * Delhi: ISD invoice for Rs.1,62,000 IGST * Bengaluru: ISD invoice for Rs.1,08,000 IGST Step 5: File GSTR-6 * All distribution details are entered in Form GSTR-6 by the 13th of the following month. * Recipients will see the distributed credit in GSTR-2B and can claim it in GSTR-3B. Chapter 5: References - Extracts from CGST Law 📌 Section 2(61) - CGST Act, 2017: "Input Service Distributor" means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9 [of this Act or under sub-section (3) or sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017)], for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;." 📌 Section 20 - CGST Act, 2017: Manner of distribution of credit by Input Service Distributor. (1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9 [of this Act or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017)], for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices. (2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy of tax under sub-section (3) or sub-section (4) of section 9 [of this Act or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017)] paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed. (3) The credit of central tax shall be distributed 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, in such manner as may be prescribed.] 📌 Rule 39 - CGST Rules, 2017: Procedure for distribution of input tax credit by Input Service Distributor.- 1[(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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, "t1 " 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 sub-section (5) of section 17 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 sub-rule (1) of rule 54, 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 provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in sub-rule (1) of rule 54, 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution 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 sub-section (3) or (4) of section 9, 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 sub-rule(1A) of rule 54 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 sub-rule (1).] (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 sub-rule (1) shall apply, mutatis mutandis, for reduction of credit. (3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the Input Service Distributor credit note specified in [clause (l)] of sub-rule (1), issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. [Explanation. - For the purpose of this rule, - (i) the term "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) the expression "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) the term ''turnover'', in relation to any registered person engaged in the supply of taxable goods as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. X X X X Extracts X X X X X X X X Extracts X X X X
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