Input Service Distributor (ISD) – Definition and Overview

As per the section 2(61) of the Central Goods and Service Tax (CGST) Act, 2017, “Input Service Distributor (ISD)” is defined as an office of the supplier of goods or services or both, that receives tax invoices issued under Section 31 towards the receipt of input services and 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. Here you will be learning about the input service distributor under GST in an explicit manner.

The input service distributor (ISD) is an office That:

• Can be a head office, administrative office, company office, nearby office, depot, and so on, belonging to registered taxable character who intends to distribute the credit.

• Receiving the tax invoices towards the receipt of inward supply of services.

• Distributes the tax credit paid of inward supplies of services to the branch units which have consumed the services, and issues invoices for the distribution of credit.

An Input Service Distributor (ISD) thus, being a business, can receive invoices for goods or services or both for the purpose of usability by its branches. Furthermore, an ISD issues an ISD invoice to distribute tax that is paid to its branches. It is commonplace that companies have a distributed device of production devices or provider rendering units across the nation. In simple words, groups with head offices and branch offices, which might be spread across the nation, maybe in the same state or in another state. Under this system, a good way to have higher operational efficiency and control, usually companies adopt centralized billing for procurement of commonplace offerings on the head office. This situation leads to the accumulation of input tax credit paid on commonplace inward supplies which might be used by the branch gadgets.

So, to keep away from the aforesaid situation, the idea of Input Service Distributor (ISD) was brought in CENVAT credit rules, which lets in the head office to distribute the input tax credit to eligible units that are engaged in production or rendering of taxable services. The head office, which does the centralized billing for procurement of not unusual services is, therefore, termed as the ‘Input Service Distributor’.

In order to distribute the credit, the head office is required to submit application for a separate registration as an ISD, and file half-yearly return.

As an ISD, the head office specially plays the following:

• Receives service tax bill/invoice for availing common input services
• Distributes the input tax credit score to eligible units with the aid of issuing a bill/challan, as needed.

Eligibility In Order To Register as an Input Service Distributor (ISD) Under GST?

In order for a supplier of goods or services or both to become an Input Service Distributor (ISD), he/she must fulfil certain conditions that have been stated and mandated under the CGST Act, 2017.

(a) The Input Service Distributor (ISD) should be an office of the supplier.

(b) Such supplier can be a supplier of goods or services or both.

(c) Such office should receive tax invoices issued in respect of receipt of input service. Tax invoices received in respect of input goods are not eligible for ISD benefits.

An Input Service Distributor (ISD) is needed to acquire a separate registration. The registration is mandatory and there may be no threshold limit for registration for an ISD. Businesses who’re already registered as an ISD under the prevailing regime (i.e., under Service Tax), might be required to obtain a new ISD registration under GST. This is because the prevailing ISD registration will not be migrated to the GST regime.

Manner of Distribution

Under GST, on an intrastate transaction, CGST and SGST will be applicable. In the case of the transaction within a union territory, CGST and UTGST will be applicable. IGST will be applicable in the case of interstate transactions and imports. The following are the situations of distribution of credit by means of an ISD:

• ISD and the recipient of credit are located within the same state
• ISD and the recipient of credit are placed in other states