What is Input Service Distributor in GST?

These days, businesses having a distributed system of service rendering units as well as manufacturing units across the country are quite common. In other words, businesses with Head and Branch Offices spread across the country could be located in the same or different state. Under this system, for having a better operational control and efficacy, businesses prefer centralized billing for gaining common services at the HO. As a result of this situation, there’s an accretion of input tax credit paid on common inward supplies used by the branch units.

So, for avoiding the above mentioned situation, the notion of Input Service Distributor (ISD) got introduced in CENVAT credit rules, with the help of which the HO can easily distribute the input tax credit to entitled units which are responsible for manufacturing or rendering of services that are taxed.

Businesses having Tally ERP 9 integrated with GST would prefer input tax distributor as it helps ensure a smooth functioning of business. Under the GST model, Input Service Distributor includes:

• The office of the supplier of goods which gets tax invoices issued under section 28 towards receipt of input services and issues a suggested document for the purposes of distributing the credit of CGST and/or IGST paid on the services to the supplier

Registration along with Returns filing under GST

• Businesses need to apply afresh for registration as migration of prevailing registration won’t apply to ISD. Thus for a tax payer, it’s worth to take a note that he/she could apply as a ‘Supplier of Service’ as well as an ‘Input Service Distributor’ concurrently unlike the current scenario. Distinct registration number would be given for this application.
• If the business is registered as an ISD then it requires to file the return by 13th day of the following month while if the business is registered as ‘Supplier of Service’ then return needs to be filled by 20th day of the succeeding month

What are the conditions for Credit Distribution?

• The required documents need to be issued to the receipts of credit comprising the suggested details
• The amount of credit distributed should not surpass the distribution amount
• Credit of tax paid on input services accredited to a credit’s recipient would be given only to that recipient
• Turnover in such recipient’s state during the pertinent period, to the turnover’s aggregate of all such receivers to whom such input service is accredited and that are operative in the prevailing year, during the said applicable period

The provisions under the prevailing tax laws have been kept affiliated under this GST model law so that all the benefits continue that are available to Input Service distributor with solidity.

Riyaz Tamboli is a Director at Antraweb Technologies Pvt. Ltd., a leading provider of Tally ERP solutions built on the Tally platform.