The role and responsibilities of an Input Service Distributor (ISD) under GSTR-6 are crucial in ensuring smooth and efficient distribution of input tax credits within an organization. An ISD acts as a centralized entity that receives invoices for input services from various branches or units of a company and distributes the corresponding input tax credits to the respective units. ISD not only streamlines the process of claiming input tax credits but also helps to maintain accurate records and compliance with the GST regulations. Additionally, an ISD is responsible for preparing and filing GSTR-6, which includes details of all the invoices received and distributed. By fulfilling these responsibilities diligently, an ISD contributes to the overall efficiency and compliance of the organization’s GST operations.
Who are Input Service Distributors?
Input Service Distributor or ISD is a taxpayer under GST which receives invoices for the services used by its branches and distributes the tax, also known as Income Tax Credit or ITC under central tax (CGST), State tax (SGST), Union territory tax (UTGST), or integrated tax (IGST) paid on the said services. These branches may have different GSTINs but should be registered under the same PAN number.
A supplier of goods or services, or both, might operate from multiple locations such as the head office, registered office, regional office, marketing office, branch, warehouses, and sales depots. These units receive various input services like security, communication, courier, housekeeping, and accounting, incurring GST payments. These units can register as Input Service Distributors to enhance the efficient utilization of accumulated credit. This registration as an ISD allows them to claim credit on input services and distribute it among other units, addressing the challenge of optimal credit utilization.
Importance of Input Service Distributors
The ISD concept offers a solution for businesses dealing with substantial shared expenses and centralized billing or payments. This mechanism aims to streamline credit retrieval for entities, bolstering the smooth flow of credit within the framework of GST.
Limitations on Applicability of ISD
- ISD cannot claim ITC on inputs and capital goods, such as raw materials and machinery.
- They must keep ITC from outsourced manufacturers or service providers.
- The ISD function within the GST mechanism is specifically designed for distributing credit tied to shared invoices. These invoices must align with the input services received.
The Manner of Distribution of ITC by ISD
- Allocating tax credits connected to specific input services that a single recipient fully utilizes is limited to that recipient exclusively. This credit cannot be assigned to other recipients for their utilization.
- The ISD must proportionately allocate the tax credit available for input services used collectively by multiple recipients. This allocation should be determined based on the turnover ratio of all operational recipients throughout the year.
- The ISD must distribute the tax credit associated with input services used collectively by all recipients proportionally among each recipient. This distribution must rely on the turnover ratio of all operational recipients during the entire year.
Prerequisites for ISD Compliance
An Input Service Distributor must mandatorily register as an “ISD,” separate from their regular GST taxpayer registration. They must specify their ISD status in serial number 14 of the REG-01 form. Only after making this declaration can they proceed with distributing credit to recipients.
The ISD can distribute the tax credit amount to recipients by issuing an ISD invoice.
The ISD must ensure that the distributed tax credit amount is within the available tax credit at the end of the relevant month. This information must be reported in GSTR-6 by the 13th* of the succeeding month. The ISD can source the ITC details from the GSTR-2B return.
Restriction in Input Tax Credit Distribution:
Distributing tax credits paid under the reverse charge mechanism to recipients is not permissible. As a result, the ISD must utilise this credit just like any other ordinary taxpayer.
Incorrect Tax Credit Distribution Scenarios by Input Service Distributor
- Distributing credit to recipients beyond the available amount for distribution.
- Allocating credit in an incorrect ratio to recipients.
- Excessively distributing credit beyond what a supplier is eligible for. In such cases, the excess credit and interest shall be recovered from the recipients. The “Demand and Recovery” process will be applied to carry out this recovery.
The Input Service Distributor (ISD) plays a vital role under GSTR-6 by ensuring the smooth distribution of tax credit among different business units. From precise allocation to meticulous record-keeping, the ISD’s responsibilities aim to facilitate efficient credit utilization while upholding GST regulations. By dutifully fulfilling these tasks, the ISD actively contributes to fostering a seamless credit environment within the GST framework.
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Frequently Asked Questions (FAQs)
Is there an Electronic Credit Ledger available for ISD Registrations?
No, there is no Electronic Credit Ledger maintained for ISD Registrants since ISD has to only distribute credit available during a tax period.
2. Does the reverse charge mechanism apply to ISDs? Can an ISD be liable to pay tax on a reverse charge basis?
No, an ISD individual is not subject to reverse charge liability.
3. Can I change the credit allocation for earlier tax periods in Form GSTR-6? If possible, how can I do it?
You can allocate the credit via the ISD invoice and furnish the information in Table 5 and Table 8 of Form GSTR-6, highlighting both qualified and disqualified distributions to the units.
4. Can the date of filing Form GSTR-6 be extended?
Yes, the Government can extend the date of filing Form GSTR-6 through notification.