Input Service Distributor (ISD) – Implications and tax planning under GST

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Often there are various services which are being received by a taxable entity to be used for its differently located business/ branches but invoicing are being done in the name of one location. Hence that location may distribute such input services to its respective locations. 

These INPUT SERVICES are being used for business purposes and for doing business activities. As the name suggest, ISD being a registered taxable entity which distributes input services among other entities having same PAN.

As per sec 2(61) of CGST act states” means an office of the supplier of goods or services or both which 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”

Now without getting into purely academic way of explaining the concepts related to ISD, let’s have a look at some interesting facts and notes about the ISD while advising to a client on GST –

1-      The concept of ISD is not a new concept introduced by GST, it still exists under current service tax regime,

2-     Existing registration on account of ISD under service tax cannot be carried forward and hence separate registration for ISD would be required under GST as FRESH,

3-     This concept is purely an OPTIONAL way for any taxable Entity and it does not impose any compulsion over any entity about its compliances,

4-    Distribution of services would be purely of those services which have been taken as input services which means if one cannot take a service as input service then it will not be eligible for further distribution to its other locations,

5-    In order to distribute such Input services one has to register its place where the invoice of such services are being received and required to be distributed as ISD, again it is purely upto the management to opt of such ISD related guidance,

6-    It should not be construed in any manner that ISD would be a place where HO of the entity usually exists, however ISD could be any location where such INPUT SERVICES are being billed centrally and required to be distributed,

7-    Each such location where INPUT SERVICES are required to be distributed to other locations needs SEPARATE registration, hence each such location would have separate ISD registration even if it is in same state where such services are to be distributed,

8-    Distribution of such INPUT SERVICES would be done using an ISD invoice which is to be issued by such ISD unit to its different locations. It is worth to be noted that there is no need to issue such ISD invoice for each invoice level but it can be issued at consolidated for several services which are being received by an ISD,

9-    Recipient of such credit would be a unit which is having COMMON PAN across and there must be a nexus or evidence that the such INPUT SERVICES are being attributable to such location and should not be distributed just because the location is a part of PAN, however there may be a situation where such recipient is not a registered location being involved in exempt supplies only,

10-  Such distribution would be based on ISD invoice which would contain complete details of such distribution/ allocation to its respective locations,

11-   The distribution of such INPUT SERVICES would be based on aggregate turnover of each such recipient over the total aggregate turnover of the all such distributable location using this percentage,

12- Return of such ISD would be submitted in a form of GSTR 6 for each month by 13^th of next month for each such location separately,

Some useful notes to discuss:

1)      The table below shows the distribution of credits by ISD among the recipient of such INPUT SERVICES-

Input service tax received by ISD	Recipients location	To be distributed  among recipients
IGST	Different state from ISD location (including ISD itself, if distributed)	IGST
CGST	Different state from ISD location	IGST
	Same location as ISD(including ISD itself, if distributed)	CGST
SGST	Different state from ISD location	IGST
	Same location as ISD(including ISD itself, if distributed)	SGST

2)      If a company incurs some INPUT SERVICES which are being billed centrally at one location could be seen in a way to distribute such INPUT SERVICES to other locations where these TYPE of credit (IGST, CGST, SGST) could be utilized by paying any outward supplies,

3)      There is no compulsion to register as ISD, however one has to see cost benefit for opting these rules as compliances to maintain ISD would be compared with the benefits which one could make by using these inward distributed credits to the respective locations,

4)      If there are many INPUT SERVICES which may be considered for distribution but does not opt to register as ISD then there might be a unutilized credit or additional working capital requirements based on individual cases,

5)      ISD registration would be one of the area where Management needs to look at all possible costs and its related benefits before it is being opt out,

6)      ISD would be very useful in such cases where place of supply is in different location but some expenses related to these services are already incurred at some other location which can then be distributed using ISD registration,

7)      ISD would not replace inter-branch services supply which will be covered under IGST,

The discussion above is solely articulated for the purpose of our readers to provide them an approach towards the REAL TIME case studies and accordingly ADVISORY ON GST can be given.

Views/ interpretation are personal However comments / feedbacks are welcome..