🚨 Mandatory Input Service Distributor (ISD) Registration from April 1, 2025! 🚨

Attention, Business Owners! Significant changes are coming to the Goods and Services Tax (GST) framework that could impact your operations. Starting April 1, 2025, the Input Service Distributor (ISD) mechanism becomes mandatory for businesses handling input services across multiple branches. Let’s dive into what this means for you and how to stay compliant. 📢

🧐 What is an Input Service Distributor (ISD)?

An Input Service Distributor is a central office of a business that receives invoices for input services and distributes the corresponding Input Tax Credit (ITC) to its branches or units under the same Permanent Account Number (PAN). This ensures that ITC is appropriately allocated to the locations where the services are utilized. 🏢➡️🏢

🔑 Key Highlights of the New ISD Mandate:

1️⃣ Mandatory ISD Registration

• Who Needs to Register?
  Any business receiving invoices for input services used across multiple branches must obtain a separate ISD registration. This is crucial for the proper distribution of ITC to the respective branches. 📝

• Scope of ISD:
  The ISD mechanism applies exclusively to input services and does not extend to inputs or capital goods. Ensure you’re distributing ITC only for services, not goods or capital assets. ⚠️

2️⃣ Registration Process

• Existing GST Registrants:
  If you’re already registered under GST, you can apply for ISD registration without canceling your current registration. The ISD registration is an additional registration specifically for distributing ITC. 🔄

• How to Register:
  Apply using Form GST REG-01. Note that there is no turnover threshold for ISD registration—it’s mandatory regardless of your business size. 🖋️

3️⃣ ITC Distribution Rules

• Exclusive Services:
  If an input service is used exclusively by a particular branch, allocate the ITC solely to that branch. 🎯

• Common Services:
  For services utilized across multiple branches, distribute ITC based on the turnover of each branch during the relevant period. Use the formula:

  C1=(t1T)×CC1 = \left( \frac{t1}{T} \right) \times CC1=(Tt1​)×C

  Where:

  • C1 = ITC for the specific branch

  • t1 = Turnover of the branch during the relevant period

  • T = Aggregate turnover of all branches during the relevant period

  • C = Total ITC to be distributed

• Distribution Method:

  • Same State Branches: Distribute ITC as Central GST (CGST) and State GST (SGST).

  • Inter-State Branches: Distribute ITC as Integrated GST (IGST).

4️⃣ Compliance Requirements

• ISD Invoice:
  Issue an ISD invoice detailing the ITC distribution as per Rule 54(1) of the CGST Rules. 🧾

• Monthly Filing:
  Submit Form GSTR-6 by the 13th of the following month, reporting the distributed ITC. 📆

• Record Maintenance:
  Maintain detailed records of received invoices and distributed ITC to ensure compliance and facilitate audits. 🗂️

5️⃣ Handling Debit and Credit Notes

• Debit Notes:
  If a supplier issues a debit note, distribute the additional ITC to the relevant branches using an ISD invoice. 📝

• Credit Notes:
  Upon receiving a credit note from a supplier, issue a corresponding ISD credit note to adjust the distributed ITC. If the credit note amount exceeds the ITC previously distributed, the branch must add the difference to its output tax liability. 🔄

6️⃣ Ineligible ITC

• Responsibility:
  ISDs must also distribute ineligible ITC, and it’s the responsibility of the recipient branches to ensure they do not claim such credits. ❌

7️⃣ Penalties for Non-Compliance

• Consequences:
  Failure to adhere to ISD provisions may result in the denial of ITC claims and a minimum penalty of ₹10,000. Ensure compliance to avoid unnecessary penalties. ⚖️

📚 Illustrative Example:

Scenario:

• Company: ABC Ltd.

• Head Office: Kolkata

• Branches: Chennai, Bangalore, Mumbai, Delhi

• Service Purchased: Software license and maintenance services (used across all locations)

• Invoice Received At: Corporate Office, Kolkata

Process:

1. ISD Registration:
   The Kolkata Corporate Office must register as an Input Service Distributor.

2. ITC Distribution:
   The ITC from the software services must be distributed to the Chennai, Bangalore, Mumbai, and Delhi branches based on their respective turnovers.

3. Compliance:
   Issue ISD invoices and file Form GSTR-6 monthly to report and distribute the ITC appropriately.

🛡️ Conclusion:

The mandatory ISD registration effective April 1, 2025, aims to streamline the distribution of ITC for input services across businesses with multiple GST registrations under the same PAN. Entities must ensure compliance with these provisions to facilitate accurate ITC allocation and avoid potential penalties. Stay proactive and prepare your systems for this significant change to maintain seamless operations. ✅

📞 Need Assistance?

Navigating these changes can be complex, but Dhan Tax is here to help! Our team of experts can guide you through the ISD registration process and ensure your business remains compliant.

• Website: www.dhantax.in

• Call/WhatsApp: +91-7678456921