Concept of ISD is a facility made available to business having a large share of common expenditure and where billing/payment is done from a centralized location.

Refer Section 2(61) for meaning of “Input Service Distributor”

Ex

The Corporate office of ABC Ltd. is at Bangalore, with its business locations of selling and servicing of goods at Bangalore, Chennai, Mumbai and Kolkata. Software license and maintenance is used at all the locations, but invoice for these services (indicating CGST and SGST) are received at Corporate Office. Since the software is used at all the four locations, the ITC of entire services cannot be claimed at Bangalore. The same has to be distributed to all the four locations. For that reason, the Bangalore Corporate office has to act as ISD to distribute the credit. If the corporate office of ABC Ltd, an ISD situated in Bangalore, receives invoices indicating Rs.4 lakh of CGST, Rs.4 lakh of SGST and Rs.7 lakh of IGST, it can distribute the ITC of CGST, SGST as well as IGST of Rs.15 lakh amongst its locations at Bangalore, Chennai, Mumbai and Kolkata through an ISD invoice containing the amount of credit distributed.

[FAQ-1] [FAQ-22/12/18 Q-31]

Will ISD be required to be separately registered other than the existing tax payer registration?

Yes, 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.

[FAQ-2] [FAQ-22/12/18 Q-32]

Can a tax payer have multiple ISDs?

Yes, different offices of a company like marketing division, security division etc. may apply for separate ISD registration.

Section 20(1)

ISD shall distribute ITC of

CGST as CGST or

IGST as IGST or CGST,

by issue of a document containing amount of ITC being distributed in such manner as prescribed in Rule 39.

Section 20(2)(c), (d) & (e)

ISD may distribute ITC to the recipient as follows

.

Question & Answer

Rule 39(1)(d)

ITC distributable as per section 20(2)(d) and (e)

to one of the recipients ‘R1’, whether registered or not, from amongst the total of all the recipients to whom ITC is attributable, including recipient(s) engaged in exempt supply 

shall be C1 = (t1÷T) ×C

where,

C₁ = ITC distributable to each recipient

C = ITC to be distributed,

t1 = Turnover in a state/UT of R1 during relevant period, and

T = Aggregate of turnover of all recipients to whom ITC is attributable and which are operational in the current year, during relevant period.

Question & Answer

Explanation to section 20 for the purposes of this section,

“Relevant Period”

(b) “recipient of credit” means supplier of goods or services or both having same PAN as that of the ISD;

(c) ‘‘turnover’’, in relation to any RP engaged in the supply of taxable goods as well as goods not taxable under this Act, means turnover excludes Central Excise Duty, State Excise Duty, Central sales tax and VAT.

ITC of input services is distributed only amongst those recipients to whom the input services are attributable.

ITC is distributed amongst the operational units only.

Rule 39(1)(c)

TC of CGST, SGST, UGST & IGST shall be distributed separately as per clause (d)

Section 20(2)(b)

ITC distributed shall not exceed ITC available for distribution

Rule 39(1)(a)

ITC available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in GSTR-6

Rule 39(1)(b)

ISD shall, as per clause (d), separately distribute the amount of

ineligible ITC (ineligible u/s 17(5) or otherwise) and

eligible ITC;

Rule 39(1)(e) & (f)

ITC on each tax shall be distributed as follows:

.

Question & Answer

Section 20(2)(a)

ITC can be distributed to recipients against a document containing details as prescribed

Rule 39(1)(g)

ISD shall issue an ISD invoice as per Rule 54(1) clearly indicating in such invoice that it is issued only for distribution of ITC;

Rule 39(1)(h)

ISD shall issue an ISD CN as per Rule 54(1) for reduction of credit in case the ITC already distributed gets reduced for any reasons

Rule 54(1)

Refer para 31.14.1 of guide on section 31

Rule 54(1)

Refer para 31.14.2 of guide on section 31

Rule 39(1)(i)

any additional ITC through DN issued to an ISD by its supplier

shall be distributed as per conditions specified in clauses (a) to (f) and

amount attributable to any recipient shall be calculated as per clause (d) and

such credit shall be distributed in the month in which DN is included in GSTR-6;

Rule 39(1)(j)

any reduction in ITC through CN issued to an ISD by its supplier

shall be apportioned to each recipient in the same ratio in which the original credit was distributed and the amount so apportioned shall be-

(i) reduced from ITC to be distributed in the month in which CN is included in GSTR-6; or

(ii) added to the output tax liability of the recipient where the amount so apportioned is in excess of ITC to be distributed by ISD

Rule 39(2)

If ITC distributed by an ISD is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the ISD,

process specified in Rule 39(1)(j) shall apply, mutatis mutandis, for reduction of credit.

Rule 39(3)

Subject to Rule 39(2), ISD shall, on the basis of ISD CN specified in clause 39(1)(h),

issue an ISD invoice to the recipient entitled to such credit and include ISD CN and ISD invoice in the return in GSTR-6 for the month in which such CN and invoice was issued.

Question & Answer