input service distributor

An Input service distributor (ISD) is a business which receives invoices for services used by its branches. It distributes the tax paid, to such branches on a proportional basis by issuing an ISD invoice.

The branches can have different GSTINs but must have the same PAN as that of ISD.

example.
Head office of ABC limited is located at Bangalore having branches at Chennai, Mumbai and Kolkata. The head office incurred annual software maintenance expense(service received) on behalf of all its branches and received the invoice for the same. Since software is used by all its branches, the input tax credit of entire services cannot be claimed at Bangalore. The same has to be distributed to all the three locations. Here, the Head office at Bangalore is the Input Service Distributor.

Procedure for distribution of Input Tax Credit by ISD.

An Input Service Distributor should follow the below procedures while distributing the input tax credit:

1. Input tax credit should be distributed in the same month in which it is received

2. The details of the input tax distributed should be furnished in GSTR 6

3. Ineligible input credit should be separately distributed

4. ITC on account of IGST, CGST, SGST, UTGST should be distributed separately

5. ITC of IGST should be distributed as IGST only

6. ITC of CGST, SGST or UTGST should be distributed as CGST, SGST or UTGST if the ISD and recipient are located in the same state/union territory

7. ITC of CGST, SGST or UTGST should be distributed as IGST as aggregate of CGST and SGST or UTGST if the ISD and recipient are located in different states/union territories

8. ISD has to issue invoice as per rule 54(1) clearly indicating in such invoice that it is issued only for distribution of ITC

9. ISD has to issue credit note in case of reduction in the ITC already distributed

10. ISD can also distribute any additional ITC through a debit note

11. When ITC is reduced through credit note, ITC should be reduced in the same ratio by which it was distributed earlier in the original invoice. Credit is either reduced from the distributed credit in the month in which the credit note is included in GSTR 6 or added to output tax liability when the distributed credit is lesser than the reducing credit

12. If the distributed credit is reduced later on due to any reason for any recipient, including credit distributed to wrong recipient, the same process as mentioned in Point No.11 shall be followed. Such wrong credit can be distributed through an invoice to the eligible recipient. Such credit note and invoice should be recorded in return GSTR 6 in the same month

Calculation Input Credit to be distributed

Input credit which is to be distributed to any recipient, whether registered or not, including the recipient who is making exempted supply shall be calculated in the following manner:

C1 = (t1 ÷ T) x C

C – Amount of input credit to be distributed

t1 – Turnover of a particular recipient to whom the credit to be distributed

T – Aggregate turnover of all recipients, eligible to receive the ITC

C1 – ITC amount is to be distributed to a particular recipient

Example:

Total ITC to be distributed (C) – Rs.1,00,000/-

Turnover of Coimbatore Branch (t1) – Rs.5,00,000/-

Total turnover of all branches (T) – Rs.20,00,000/-

ITC distribution amount :

Rs.25,000/- = (500000 ÷ 2000000) x 100000

ITC to be distributed to Coimbatore branch is Rs. 25,000/- (C1)