In continuation to our earlier post on Role of Input Service Distribution, we will now highlight the conditions and procedure applicable for distribution of Input Credit by an ISD (Input Service Distributor) thought this post.
Definition of ISD is, ‘an office of supplier of goods and/or services, which has received input services under the cover of tax invoice, and is allowed to distribute the said tax credit to the supplier of goods and/or services registered under the same PAN’.
Conditions applicable for distribution of Input Credit by an ISD*
1. Input Tax Distributor is compulsorily required to be registered under GST irrespective of threshold limits.
2. The distributor is to issue an ISD invoice to the recipient of credit (unit to which the input tax credit is distributed), and the invoice should clearly specify ‘issued only for distribution of input tax credit.’ The invoice / chalaan / bill should have basic details, as specified below.
- Name, address, and GSTIN of the Input Service Distributor
- The period to which the Return is of relevance
- Name, address, and GSTIN of the supplier of services, the credit in respect of which is being distributed, and the serial number and date of invoice issued by such supplier
- Name, address, and GSTIN of the recipient to whom the credit is being distributed
- The amount of credit distributed, date of issue, signature or digital signature of the supplier or his authorised representative
- Amount of credit distributed must not exceed amount available to distribution.
3. Input Tax Credit available for a month must be distributed in the same month amongst the recipients and details to be furnished in FORM GSTR-6.
4. The ITC creditshould be distributed only to that business unit which has utilized the input servic For example, Apoorva Apparels Pvt Ltd is located in Rudrapur, Uttarakhand. They also have branches located in Nainital (Uttarakhand) and Dehradun (Uttarakhand). The unit in Nainital is the Head office and they procure common services in bulk which are used by the other branches too.Apoorva Apparels Pvt Ltd(HO – Nainital) receives an invoice of Rs.1,00,000 + GST of Rs.18,000 towards advertisement services provided exclusively to the Dehradun branch. In this case, the total credit of Rs.18,000 will be distributed only to the Dehradun branch.
4.Credit of tax paid on input services attributable to a recipient of credit or all, shall be distributed only to that recipient or all recipients. And, the distribution shall be on pro rata basis.
5. Any additional amount of input tax credit on account of issuance of a ‘debit note’ by a supplier to the ISD by the supplier shall be distributed to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed. The distribution shall be on pro rata basis and in the same method as mentioned above in point no. 5.
6. In case the input tax credit already distributed gets reduced for any reason, an ISD credit note should be issued for the reduction of credit. The following details have to be captured in the ISD credit note :
- Name, address, and GSTIN of the ISD
- A consecutive SL.No containing alphabets or numerals or special characters such as hyphen or dash or slash, symbolized as, “-“ “/” respectively, and any combination thereof, unique for a financial year
- Date of its issue
- Name, address, and GSTIN of the recipient to whom the credit is distributed
- The amount of credit distributed, and
- The signature or digital signature of the ISD or his authorized representative
7. Any input tax credit required to be reduced on account of issuance of a ‘credit note’ by a supplier to ISD by the supplier, should be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed. The amount apportioned should be:
- reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR – 6, and
- Added to the output tax liability of the recipient
The Input Service Distribution mechanism is a blessing to the tax payer in many ways. However, it is important for ISD to work out distributable credits to units appropriately to get through the departmental audits without any hindrance.
Source: Input Tax Credit Rules