Introduction
An Input Service Distributor (ISD) is a business that receives tax invoices for input services as a common registration for whole business and distributes the credit among the various branches of the organization.
The Input Service Distribution mechanism permits credit to be distributed on common bills for input services only, not goods or commodities. This is important for businesses having a central office and units that are registered independently.
The Head Office obtains some services for the common use of all units, and the Head Office bills for such charges. Because the common spending is intended for the business of all units, the credit for input services in relation to such shared invoices should be distributed among all consuming units. The ISD method allows for such proportionate credit distribution of input services among all consuming units.
Example of How Input Service Distributor Works:
Consider the company XYZ Ltd., which has many offices in various Indian states like in Mumbai , Bangalore , Delhi , Hyderabad. XYZ Ltd. has created an Input Service Distributor (ISD) in Mumbai were it receives all invoices which are commonly use by multiple branches and than does the distribution of input tax credits for numerous common services throughout.
Ratio of Distribution of Input Services by the ISD
Following are few set rules to be followed :
The credit has to be distributed only to the unit to which the supply is directly attributable to or if there is identifiable or justified mechanism or formulae to allocate among the branches .
If input services are attributable to more than one recipient of credit and there is not specific mechanism to attribute the consumption of service than the distribution shall be in the pro-rata basis of turnover.
If a particular input service pertains exclusively to only one unit and the bill is raised in the name of ISD, the ISD can distribute the credit only to that unit and not to other units
Compliances of Input Service Distributor
An ISD will have to file monthly returns in GSTR-6.
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
Distribution would be done only among the operational units
Actual Procedure With Illustration to Understand Input Service Distribution
Company ABC Ltd have following branches with turnover, Mumbai – Rs 10 L , Bangalore – Rs. 20 L , Chennai – Rs 15 L ,
Following Input Credits are of the company
Audit Service: Rs 2 Lakhs, CGST Rs 18000, SGST – Rs 18000
Design Service: Rs 1 Lakhs IGST Rs 18000
Production Support in Mumbai and Bangalore: Rs 1 Lakhs, CGST – Rs 9000, SGST – Rs 9000
Purchase of Goods on ISD GST No of Rs 50,000 , IGST – Rs. 8,000
Input Service Distribution Registration is Obtained in Mumbai
Lets Calculate distribution of Credit :
Input credit availed by ISD will be distributed to Mumbai as CGST and SGST and credit distributed to Bangalore and Chennai will be inform of IGST.
Input Credit | Mumbai | Bangalore | Chennai |
Audit Service (Tunover Ratio ) | 8000 | 16000 | 12000 |
Design Service (Turnvoer Ratio) | 4000 | 8000 | 6000 |
Production Support (Tunover Ratio only between Mumbai & Bangalore ) | 6000 | 12000 | 0 |
Purchase of Goods (not allowed to distribute for goods, need to take revise invoice on GST Reg of branch were goods are purchased) | 0 | 0 | 0 |
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