All about Input Service distributor
Various Questions that one may face in respect of Input Service Distributor are discussed below:
Who is Input Service Distributor (ISD)?
As per Section 2(61) of the Central Goods and Services Tax (CGST) Act, 2017, unless the context otherwise requires, the term “Input Service Distributor” means an office of the supplier of goods or services or both which
(1) receives tax invoices issued under section 31 towards the receipt of input services and
(2) issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.
How the ISD can distribute the credit?
As per sub-section (2) of Section 20 of CGST Act the Input Service Distributors shall distribute-
(a) the credit of central tax as central tax or integrated tax, and
(b) integrated tax as integrated tax or central tax,
by way of issue of document containing the amount of input tax credit being distributed in such manner as may be prescribed.
What are the conditions to distribute the credit by ISD?
As per sub-section (2) of Section 20 of CGST Act, the ISD can distribute the credit subject to following conditions, namely-
- the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;
- the amount of the credit shall not exceed the amount of credit available for distribution;
- the credit of tax paid on input services attributable to a recipient of credit shall be distributed to only that recipient;
- the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients on pro rata on the basis of the turnover of the State or turnover in a Union territory of such recipient, during the relevant period;
- The credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a union territory of such recipient, during the relevant period.
Turnover: Turnover means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I and entry 51 and 54 of List II of the Seventh Schedule of to the Constitution.
Relevant Period: The relevant period shall be-
(i) If the recipients have turnover during the financial year preceding the year in which credit is distributed, then the said financial year is a relevant period, or
(ii) If Condition (i) is not satisfied, then the turnover of the last quarter, previous to the month during which credit is to be distributed.
Example: ABC Ltd, having it’s Head Office at Bangalore, registered as ISD. It has three offices in Bangalore, Delhi, and Hyderabad. It furnishes the following information:
Turnover of three units is: Bangalore: 12,00,000; Delhi: 10,00,000; Hyderabad: 8,00,000.
(a) CGST and SGST paid on services used only by Bangalore Unit: 90,000 each.
Attributable to only Bangalore unit as per Sec 20(2) condition no. (iii)
(b) IGST, CGST and SGST paid on services for all units: 7,20,000.
Attributable to all the units in the ratio of turnover [Section 20(2) condition no. (iv) & (v)] Bangalore:7,20,000 x 12/30 = 2,88,000 divided in Centre and State.
Delhi: 7,20,000 x 10/30 = 2,40,000 distributed as IGST
Hyderabad: 7,20,000 x 8/30 = 1,92,000 distributed as IGST