What is an Input Service Distributor (ISD)?
An Input Service Distributor (ISD) is a concept under the GST law defined in Section 2(61) of the CGST Act, 2017. It refers to an office of a supplier of goods or services that receives tax invoices for input services and issues a document to distribute the available input tax credit (ITC) to other branches of the same business. These branches must share the same Permanent Account Number (PAN) as the ISD office.
Registration Requirements for ISD
- Mandatory Registration: An ISD must obtain a separate registration under GST. There is no threshold limit for this registration.
- New Registration Needed: Businesses previously registered as an ISD under the old Service Tax regime must re-register under GST as their existing registrations won’t be migrated.
Importance of ISD
The ISD mechanism is particularly relevant for businesses with multiple branches across India. Each branch must obtain a GSTIN for its location. The ISD helps in distributing ITC accrued from the head office or branch purchases, ensuring a smooth flow of credit between branches.
When ISD is Useful
ISD is beneficial for businesses with substantial common expenditures, managed centrally. It simplifies the credit distribution process, enhancing the seamless flow of credit under GST.
When ISD is Not Applicable
The ISD mechanism is strictly for distributing credit on common invoices for input services. It does not apply to input or capital goods.
How ISD Distributes Credit
- Direct Attribution: Credit must be distributed only to the unit directly attributable to the input service.
- Pro-rata Basis: If input services are shared among multiple units, the distribution is based on the pro-rata turnover of each unit within the state or union territory.
Example: If an ISD has four units across the country, and a particular input service pertains exclusively to one unit, the ISD can distribute the credit only to that unit. For common input services, the credit is distributed according to the turnover ratio of all units.
Filing Returns as an ISD
- Monthly Returns: Every ISD must file monthly returns in GSTR-6 within 13 days after the end of the month. This return includes information about all ISD invoices issued.
- Details Availability: The details in the GSTR-6 returns will be made available to the respective recipients in their GSTR-2A, which they can use to claim credit in their GSTR-2.
- No Annual Return: ISDs are not required to file an annual return.
- Restrictions on Reverse Charge: An ISD cannot accept invoices on which tax is to be paid under the reverse charge mechanism. If an ISD needs to handle reverse charge supplies, it must register separately as a normal taxpayer.
Understanding the role and requirements of an ISD under GST ensures efficient credit distribution across different branches of a business, streamlining financial management and compliance.
