Input Service Distributor (ISD) under GST: Brief Guide
                     Input Service 
Distributor (ISD) 
under GST: Brief 
Guide
We all think that taxes are an incredibly complicated 
ordeal. But not to those who have knowledge about it. 
Wouldn’t all of us like to be one of those people? So, 
head on to S20’s website and check out our taxation 
course in Ahmedabad and become an expert in taxes. 
Read on to know one of the most important concepts 
under taxation, ISD.
A provider of goods or services may have several 
locations, including their head office, registered office, 
regional office, marketing office, branch, godown, and 
sales depot. Each of these locations uses a variety of 
input services, including security, communication, 
courier, and housekeeping costs, to name a few, and is 
responsible for paying service tax. To overcome the 
difficulty of effectively utilising accumulated credit, 
such units and premises may register as an Input 
Service Distributor to get credit on such input services 
and to distribute credit to other units.
A taxpayer who receives invoices for the services used 
by its branches is known as an Input Service Distributor 
(ISD). By generating ISD invoices, it distributes the tax 
paid, known as the Input Tax Credit (ITC), to such 
branches in a proportionate manner. The branches 
must share the same PAN as the ISD but may have 
different GSTINs.
Let’s use an illustration to clarify. Company ABC 
Limited’s head office is in Mumbai, and company also 
has offices in Chennai, Delhi, and Kolkata. On behalf of 
all of its branches, the head office incurred a yearly 
software maintenance charge (service received) and 
was billed for it. Since the software is utilised by every 
branch, Mumbai is not a valid location to claim input 
tax credits for the full scope of services. To all three 
sites, the same must be given. The Input Service 
Distributor in this case is the headquarters in Mumbai.
Definition of ISD
 According to Section 2(61) of the CGST Act of 2017, a 
“Input Service Distributor” is a location of the supplier 
of goods or services or both that accepts tax invoices 
issued under Section 31 for the receipt of input 
services and issues a prescribed document in order to 
distribute the credit of central tax, State tax, 
integrated tax, or Union territory tax paid on the 
aforementioned services to a supplier of taxable 
goods or services or both having the same Permanent 
Account Number.
 According to the definition, an office of a firm that 
distributes input services is known as an input service 
distributor (ISD) under the GST. This office receives 
tax bills for input services and distributes the 
applicable input tax credit to other branch offices of 
the same company.
Registration Under GST
A distinct registration must be obtained by an ISD. 
There is no minimum need for ISD registration, and 
registration is required. Businesses that are currently 
ISDs under the current system (service tax, for 
example) will need to apply for a new ISD registration 
under the GST. This is due to the fact that the current 
ISD registration won’t be transferred to the GST 
system.
Relevance of ISD
For companies operating in India with several branches, 
ISD under GST is relevant. Each branch from which a 
taxable supply is made, as required by these businesses, 
must have a GSTIN. The business would receive ITC (Input 
Tax Credit) in the form of SGST, CGST, or IGST based on 
the purchases made by the head office or branch. Here, 
the government has created the ISD idea as mentioned 
below to make sure that the ITC is fairly allocated among 
the various business branches.
 If the recipients of the credit experienced turnover in 
their State or Union territory in the fiscal year prior to the 
fiscal year during which the credit is to be distributed, 
the fiscal year in question;
 If some or all of the recipients of the credit experienced 
no turnover in their State or Union territory in the fiscal 
year prior to the fiscal year during which the credit is to 
be distributed, the last quarter for which information 
regarding the recipients’ collective turnover is available.
Purpose of Registering As 
An ISD
The idea of an ISD is a facility made available to 
businesses with a high percentage of shared expenses, 
where invoicing and payment are handled from a single 
site. The facility is intended to strengthen the seamless 
flow of credit under GST, and the mechanism is 
intended to make the input tax credit application 
process for firms simpler.
Where Is ISD Not 
Applicable?
In the following circumstances, ISD cannot disburse the 
input tax credit:
 Where input and capital products are eligible for ITC. 
procurement of equipment and raw supplies, for 
instance.
 ITC can’t be given to contractors who make goods or 
offer services.
Ratio of Distribution Of 
Credit By ISD
Only the unit to which the supply is directly due must 
receive the credit. If input services may be attributed 
to more than one credit recipient, the distribution will 
be based on the State/Union Territory’s turnover, pro 
rata. Assume an ISD has 4 locations around the nation. 
The ISD, however, may only transfer the credit to that 
unit and not to other units if a certain input service 
only relates to one unit and the bill is raised in the 
name of the ISD. If the input services are shared by all 
units, then the distribution will be based on the overall 
turnover ratio of all the units.
How Input Tax Distributor 
can distribute the credit 
under GST
 In cases where ISD and the distributor are located in 
the same state:
 In cases where ISD and the distributor are located in 
different states:
It should be noted that if the ISD and recipient are in 
different States, the credit for CGST and SGST can also 
be issued as IGST. Large organisations with presence in 
multiple States have added this for easy credit. A 
situation where an ISD receives invoices for input tax 
credit after paying CGST and SGST (on intra-State 
supply) yet the destination unit is some other states 
may occur in practise. The ISD cannot use the 
aforementioned input to make any credit claims if it 
transfers the SGST of its state to the destination state.
Consider this situation, Upon payment of CGST and 
SGST (West Bengal), an ISD located in Kolkata may get 
an invoice for intrastate supply of input services. This 
service may be shared by its units located in the State 
of Jharkhand as well as other states. The CGST credit 
can be given to all of the ISD’s units, and those units 
can spend the credit without any issues. However, if 
the SGST (West Bengal) credit is given to units in other 
states, those states are not permitted to use it for any 
other reason. Therefore, if the ISD and Unit are located 
in separate States, a careful provision has been 
provided in the statute that allows for the distribution 
of such SGST Credit as IGST. Once the SGT (West 
Bengal) credit has been allocated as IGST to the units 
in other states, those units may use the IGST credit to 
pay their respective state’s CGST or SGST.
Filing of Returns by ISD
Every ISD must submit monthly returns in GSTR-6 
within thirteen days of the end of the month in 
accordance with Rule 65 of the CGST Rules 2017 and 
must provide details regarding all ISD invoices issued. 
The relevant recipients will receive the details from the 
returns in their GSTR 2A. The beneficiaries are free to 
credit them and include them in their GSTR-2. An ISD is 
exempt from filing an annual return. Any invoices for 
which the tax is to be discharged via the reverse 
charge procedure are not acceptable to an ISD. This is 
so that tax credit distribution can be made easier 
thanks to the ISD mechanism. As a person obliged to 
pay taxes, the ISD cannot release itself from any tax 
obligations or pay taxes to the government. ISD must 
register individually as a Normal taxpayer if it intends 
to accept products with reverse charges.
Taxation can become very complicated to understand. 
That is why we are here to make it easy for you! Head 
over to S20’s website and check out our 
taxation course in Ahmedabad and we are sure you’ll 
come out an expert.
Article Source: 
https://s20.in/blog/input-service-distributor-under-gst-br
ief-guide/
 
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