GST brought uniformity in the tax structure in India, eliminating the cascading effect of taxes on consumers. The introduction of the online portal enhanced compliance and transparency in the tax system, curbing tax evasion and streamlined the entire indirect tax system of the country. The salient feature of GST is input tax credit where businesses can claim credit for tax paid on inputs used in the production of the goods and services which helps avoid double taxation reducing the overall tax liability.
But what happens when the business grows and there are multiple entities and services availed and the credit pertaining to them? To address this the concept of Input Service Distributor (ISD) was introduced to make the distribution of credits easier for businesses with a centralized payment system from their main office. Filing returns in form GSTR-6 is mandatory for input service distributors as per GST. Here we discuss in detail the applicability and registration requirements for GSTR-6.
Input Service Distributor (ISD)
As his business expands, a supplier of goods and services will have many branches and offices like the head office, regional office, branches, warehouses, sales office, etc., that avail various input services such as housekeeping, security, warehousing expenses, courier charges, and pay GST on these services. Such units can appoint and obtain registration for an input service distributor for distribution of the credit to all the units for the efficient utilization of accumulated credit. The ISD is responsible for maintaining the tax credits of the firm’s branches registered under the same PAN. The tax credits are distributed by the ISD by issuing invoices.
Registration of Input Service Distributor
Registration of input service distributor is mandatory under section 24 of GST Act, 2017. Application for registration has to be made in form GST REG-01. He is eligible to distribute the credits only after the registration.
Important Points to Consider for Registration
Proper registration under GST is essential for businesses to avail the benefit of input tax credit and streamline their tax-related processes. The important points to understand regarding registration of ISD are as follows:
- The suppliers of goods and services appoint the ISD
- The ISD distributes the credit under SGST/CGST/IGST to entities of the supplier of goods and services with the same PAN.
- He distributed the credit in the form of ISD invoices.
- ISD mechanism is meant for distribution of credit on common invoices pertaining to input services only and not on goods either input or capital goods.
- Distribution of credits is limited to branches or units of the same company and cannot be extended to outsourced or third-party manufacturers or service providers.
- The ISDs must report the input tax credit received from the input tax providers and the distribution of credit to the recipients in the related fields of GSTR-6
- Accurate returns must be filed within the due dates prescribed under GST to ensure compliance
- ISD mechanism is only for the purpose of credit distribution and reverse charge mechanism is not applicable here.
The input service distributor is required to file GSTR-6 by the 13th of the subsequent month. In case there is no ITC available for distribution, then a Nil return for the month has to be filed by the ISD. It includes information about inward supplies and purchases made during the course of its business.
Requirements for Filing GSTR-6
The following mandatory requirements are specified for filing GSTR-6 in GST:
- The taxpayer must be registered in GST with a valid GSTIN
- The aggregate turnover of the business must be more than 20 lakh rupees
- GSTR-6 has to be filed by the input tax distributor
- Non-resident taxpayers are exempted from filing GSTR-6
- Credit distribution can only be made through GSTR-6.
- Credit of capital goods and input is not allowed to be distributed through this form.
- A valid credit distribution document should be made by the input service distributor to distribute the credit through GSTR-6.
- The input service distributor must provide the names and addresses, the amount tax credit distributed under various components like IGST, CGST, SGST, of all the branches that get the input tax credit.
- The ISD cannot distribute credit exceeding the tax amount paid for the service.
- The amount of credit disbursed in the previous tax periods can be changed in section 6A of GSTR-6. Transaction proof need to be submitted for the original and amended credits.
- The taxpayer must have valid digital signature certificate or electronic verification certificate to verify the return while filing and an active mobile number for authentication
Rectification of Wrong Distribution of Credit
- When the input service distributor distributes wrong input tax credit, recovering the wrong credit is crucial. The procedure involved in recovery of wrong credit are as follows:
- The first step is to identify the wrong credit by reviewing the records, invoices, and recipient details maintained by the ISD.
- Next, notify the recipients of the wrong credit, clearly stating the reasons for recovery and providing necessary supportive documents.
- Then initiate the reversal of the wrong credit from the recipient’s account. Appropriate adjustments can be made in the electronic credit ledger of the recipients.
- A debit note including relevant details like original distribution amount, recovered amount, information of ISD, recipient. This helps in future reference and proper documentation.
- The wrong credit can be adjusted against future distributions of the respective recipients as per the specified guidelines.
- If the recovered amount cannot be adjusted against future distributions or ineligibility of the recipient for the credit, it has to be paid to the authorities within a reasonable time as specified by the rules.
- Maintain proper documents throughout the recovery process, like copies of debit notes, adjustment details, and proof of payment, for future reference during audits.
To facilitate the growth and make compliance easier for business in India, various provisions have been provided under GST by the government. Input Service distribution mechanism is one such provision which helps businesses to centralize the common expenditure of its branches and simplify the distribution of credit. The main criteria for this is the appointment and registration of the input service distributor who is in charge of distribution of the credits and filing the mandatory GSTR-6 within the due date.
Frequently Asked Questions
- Can GSTR-6 be revised?
Answer: There is no provision for revision of GSTR-6. The errors can be corrected while filing the return of the following month.
- Is there late fees for late filing of nil return?
Answer: Yes, there is a late fee of Rs.20/-per day applicable for nil return.