In the Interim Union Budget 2024, Finance Minister Nirmala Sitharaman proposed significant changes to the distribution of credit by Input Service Distributors (ISD), aiming to streamline processes and impact businesses with multiple units.
About Input Service Distributor (ISD):
- ISD refers to an office of the supplier of goods or services that receives tax invoices for input services.
- It issues a prescribed document to distribute the credit of central tax (CGST), state tax (SGST)/union territory tax (UTGST), or integrated tax (IGST) paid on those services to a supplier of taxable goods or services having same PAN as that of the ISD.
- ISD is meant for distributing the credit on common invoices related to input services, not goods (inputs or capital goods).
Purpose of ISD:
- Company Structure: Companies may have a head office and units registered separately at different locations.
- Common Expenditure: Head Office procures services for common utilization across all units nationwide, with bills raised at the Head Office.
- Credit Utilization: As the Head Office doesn’t provide output supply, it cannot directly utilize the accumulated credit from input services.
Role of ISD Mechanism:
- Proportionate Distribution: ISD enables the proportionate distribution of credit of input services among all consuming units.
- Apportionment: The credit of input services from common invoices is apportioned appropriately, considering the business needs of all units.
Budget 2024 Proposal:
- The Finance Minister’s proposal includes adjustments in the distribution of credit by ISD.
- The modifications aim to streamline the distribution process and may have implications for businesses with multiple units and common expenditures.
Proposed Mechanism (Amendment to Section 20 of CGST Act):
- Registration Requirement: Any office of the supplier receiving tax invoices for input services for distinct persons (under section 25) needs to register as an Input Service Distributor.
- The registered ISD office is mandated to distribute the input tax credit related to the received invoices.
- Distribution of Credit: ISD shall distribute the credit of central tax or integrated tax charged on received invoices, including services liable to tax under section 9(3) or 9(4).
- Manner of Distribution: The distribution shall follow the manner, time, and conditions prescribed.
- The credit of central tax shall be distributed as central tax or integrated tax, and vice versa.
- Prescribed Document: ISD issues a document containing the amount of input tax credit for the distribution.
Ref: Source
| UPSC IAS Preparation Resources | |
| Current Affairs Analysis | Topperspedia |
| GS Shots | Simply Explained |
| Daily Flash Cards | Daily Quiz |