What is Input Service Distributor (ISD) under Goods and Services Tax (GST)?

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What is Input Service Distributor (ISD) under Goods and Services Tax (GST)? Blog Image

Overview:

The Finance Minister in Budget 2024 proposed the manner of distribution of credit by input service distributors.

About Input Service Distributor (ISD)

  • 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 the same Permanent Account Number (PAN) as that of the ISD.
  • Hence, ISD is a business which receives invoices for services used by its branches.
  • It distributes the tax paid to such branches on a proportional basis by issuing an ISD invoice.
  • The branches can have different GST Identification Numbers (GSTINs) but must have the same PAN as that of ISD.
  • Registration under GST:
    • An ISD is required to obtain a separate registration.
    • Registration is mandatory and there is no threshold limit for registration for an ISD. 
  • Relevance of ISD:
    • It is relevant for businesses having multiple branches operating within India. 
    • These businesses are required to obtain GSTIN for each branch from where taxable supplies are made.
    • Based on the purchases of the head office or branch, ITC (Input Tax Credit) in the form of SGST, CGST, or IGST would accrue to the business. 
    • To ensure that the ITC is properly distributed amongst the various branches of the business, ISD concept has been introduced by the Government.
    • ISD is made available to business having a large share of common expenditures, and billing/payment is done from a centralised location. 
  • Where ISD doesn’t apply?
    • ISD mechanism is meant only for distributing credit on common invoices pertaining to input services.
    • It is not applicable when input or capital goods are involved.

Q1) What is Permanent Account Number (PAN)?

Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department, to any "person" who applies for it or to whom the department allots the number without an application. PAN enables the department to link all transactions of the "person" with the department. These transactions include tax payments, TDS/TCS credits, returns of income, specified transactions, correspondence, and so on. PAN, thus, acts as an identifier for the "person" with the tax department.

Source: Finance Bill 2024: Know Proposed manner of Distribution of Credit by Input Service Distributor under GST