Introduction – Manner of distribution & recovery of ITC by Input Service Distributor in GST [section 20 & 21 of CGST Act]
Input Tax Credit (ITC) – GST Ready Reckoner
GST
Manner of distribution & recovery of ITC by Input Service Distributor in GST [ Section 20 & 21 of CGST Act ]
Purpose & concept of ISD Mechanism in GST
* The concept of ISD under GST is a legacy carried over from the Service Tax Regime.
* It is important to note that the Input Service Distributor (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 on the Head Office. But the Head Office itself would not be providing any outp
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or the same in form GST REG-1 as per section 24(viii) of CGST Act;
There is no threshold limit for registration for an ISD. The other locations may be registered separately; Since the services relate to other locations the corresponding credit should be transferred to such locations (having separate registrations) as the output services are being provided there. [ Substituted vide The Finance Act, 2024 ]
– From 01.04.2025 – Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under Section 9(3) or (4) of CGST Act or Section 5(3) or (4) of IGST Act, for or on behalf of distinct persons referred to in section 25; an ISD will have to compulsorily take a separate registration as such ISD and apply for the same in form GST REG-1 as per section 24(viii) of CGST Act;
There is no threshold limit for registration for an ISD. The other locations
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nches. [ Substituted vide The Finance Act, 2024 ]
– From 01.04.2025 – The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under Section 9(3) or (4) of CGST Act or Section 5(3) or (4) of IGST Act paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed. e.g., legal, security, goods transport agency are taxable under reverse charge, and the head office may pay the tax on behalf of branches. [ Again Amended vide Section 125 of the Finance Act, 2025 ]
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Manner of distribution of credit by Input Service Distributor [ Section 20(3) of CGST Act Read with rule 39 ] [ For more Details refer this chapter ]
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on 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.
Upto 31.03.2025
Manner of distribution of credit by Input Service Distributor [ Section 20 of the CGST Act, 2017 ]
Manner of issue of the Document Section 20(1)
The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed under rule 54 of CGST Rules.
Condition fulfill by the ISD Section 20(2)
The Input Service Distributor may distribute the credit subject to the following conditions, namely:
(a) the credit can be distributed to the recipients of c
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rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.
Explanation.For the purposes of this section,
(a) the “relevant period” shall be
(i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or
(ii) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;
(b) the expression “recipient of credit” means the supplier of goods or services or both having the same Permane
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