In the Interim Union Budget 2024 announcement, the Finance Minister, Nirmala Sitharaman, inter alia, proposed the manner of distribution of credit by input service distributors.
Input Service Distributor ( ISD ) means an office of the supplier of goods or services or both which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax ( CGST ), State tax ( SGST )/ Union territory tax ( UTGST ) or integrated tax ( IGST ) paid on the said services to a supplier of taxable goods or services or both having same PAN as that of the ISD.
It is important to note that the ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services only and not goods ( inputs or capital goods ). Companies may have their head office at one place and units at other places which may be registered separately.
The Head Office would be procuring certain services which would be for common utilization of all units across the country. The bills for such expenses would be raised at the Head Office. But the Head Office itself would not be providing any output supply so as to utilize the credit which gets accumulated on account of such input services.
Since the common expenditure is meant for the business of all units, it is but natural that the credit of input services in respect of such common invoices should be apportioned between all the consuming units. ISD mechanism enables such proportionate distribution of credit of input services amongst all the consuming units.
The proposed mechanism is as follows —
A substitution has been proposed to Section 20 of the CGST Act, which addresses the “Manner of distribution of credit by Input Service Distributor.” The revised wording of the section is as follows:
“(1) Any office of the supplier of goods or services or both, receiving tax invoices towards the receipt of input services, including invoices for services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as an Input Service Distributor under clause (viii) of section 24. Such an office is mandated to distribute the input tax credit in respect of such invoices.
(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him. This includes the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9, paid by a distinct person registered in the same State as the said Input Service Distributor.
This distribution shall occur in such a manner, within such time, and subject to such restrictions and conditions as may be prescribed.
(3) The credit of central tax shall be distributed as central tax or integrated tax, and integrated tax as integrated tax or central tax, by way of issuing a document containing the amount of input tax credit, in such manner as may be prescribed.”
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