As per section 2(61) of the CGST Act, 2017 Input Service Distributor SD) means an office of the supplier of goods or services or both which receives tax invoice 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.
1. Requirements for registration as ISD
As per section 24 of the CGST Act, 2017 an ISD is required to obtain a separate registration even though it may be separately registered. The threshold limit of registration is not applicable to ISD. The registration of ISD under the existing regime (i.e. under Service Tax) would not be migrated in GST regime. All the existing ISDs will be required to obtain fresh registration under new regime in case they want to operate as an ISD.
2. Documents for distribution of credit by ISD:
The distribution of credit would be done through a document especially designed for this purpose. The said document would contain the amount of input tax credit being distributed. As per rule 7 “Tax Invoice, Credit and Debit Notes” an ISD invoice or, as the case may be, an ISD credit note issued by an Input Service Distributor shall contain the following details: —
(a) name, address and GSTIN of the Input Service Distributor;
(b) a consecutive serial number containing alphabets or numerals or special characters hyphen or dash and slash symbolised as, “-“, “I”, respectively, and any combination thereof, unique for a financial year;
(c) date of its issue;
(d) name, address and GSTIN of the recipient to whom the credit is distributed;
(e) amount of the credit distributed; and
(f) signature or digital signature of the Input Service Distributor or his authorized representative:
Provided that where the Input Service Distributor is an office of a banking company or a financial institution, including a non-banking financial company, a tax invoice shall include any document in lieu thereof, by whatever name called, whether or not serially numbered but containing the information as prescribed above.
3. Distribution of Credit by ISD:
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.
CGST credit can be distributed as IGST and IGST credit can be distributed as CGST by an ISD for the recipients located in different States.
ISD can distribute SGST/UTGST credit as IGST for the recipients located in different States.
CGST and IGST credit can be distributed as CGST credit by an ISD for the recipients located in same State.
ISD can distribute SGST and IGST credit as SGST/UTGST credit for the recipients located in same State.
Distribution of credit would be done 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 of common credit would be done in the ratio of turnover in a State or Union territory of the recipient during the relevant period to the aggregate of all recipients to whom input service being distributed is attributable. Lastly, the credit distributed should not exceed the credit available for distribution.
(a) the “relevant period” shall be—
(i) 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
(ii) 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
(b) the term ‘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 entry 84 of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule.
Excess/wrongly distributed credit can be recovered from the recipients of credit along with interest.
4. Filing of Return:
ISD is required to file monthly return by 13th of the following month.