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5 Aspects of ITC Distribution an ISD should Know

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5 Aspects of ITC Distribution an ISD should Know

‘Input Distributor Officer’ is one of the most crucial concepts in the Indian economy, especially for the big players in the market. With ISD, the common expenditure shared between sub-branches of an organization is centralised, which further strengthens the flow of credit under GST.

Read our blog here on Input Service Distributor and GSTR 6

Under GST, an ISD can procure invoices for the services utilized by its sub-branches, and proportionately distribute the ITC to them. This ITC distribution is captured through form GSTR 6. Following 6 points can come handy for you to distribute while distributing Input Tax Credit through GSTR 6.

  1. Issuing ISD Invoice:

An ISD can distribute the credit available against an ISD Invoice that contains the prescribed details as mentioned in Rule 54 of CGST rules, which clearly indicates the use of such invoice only for distribution of input tax credit. Similarly, for a reduction in credit, an ISD credit note containing the prescribed details as mentioned in Rule 54 of CGST rules needs to be issued.

  1. Determining Ratio:

An ISD can distribute an amount of input credit that does not exceed the amount of credit available for distribution. Furthermore, the credit of tax paid on input service attributable to a recipient shall be distributed only to that recipient. In case of more than one recipient, the credit shall be distributed pro-rata on the basis of the turnover of such recipient to the aggregate of turnover of all such recipients to whom such input service is attributable and which are operational during the year.

  1. Calculating ITC

Input tax credit that is required to be distributed to one of the recipients ‘R1’, whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipient(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, “C1”, to be calculated by applying the following formula –

C1 = (t1÷T) × C
where,
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of person R1 during the relevant period, and
“T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable in accordance with the provisions of section 20;

  1. Distribution of IGST/CGST/SGST:

Input tax credit on account of IGST/CGST/SGST has to be distributed separately.

  1. Input tax credit on account of IGST shall be distributed as IGST.
  2. Input tax credit on account of CGST and SGST/UTGST shall be distributed in the following manner :
  • If the recipient is located in same state or union territory in which ISD is located, CGST shall be distributed as CGST and SGST/UTGST shall be distributed as SGST/UTGST.
  • If the recipient is located in different state or union territory other than that of ISD, CGST shall be distributed as IGST and SGST/UTGST shall be distributed as IGST.
  1. Issuance of Credit Note

Input tax credit required to be reduced on account of issuance of a credit note to ISD by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed in terms of clause (d), and the amount so apportioned shall be-

  1. reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR-6; or
  2. added to the output tax liability of the recipient where the amount so apportioned is in the negative by virtue of the amount of credit under distribution being less than the amount to be adjusted.

Miscellaneous

  • Input tax credit available for distribution in a month shall be distributed in the same month.
  • ISD shall separately distribute the amount of ineligible input tax credit and the amount of eligible input tax credit.

An Input Service Provider is required to file form GSTR 6, which contains the details of ITC received by an Input Service Distributor and distribution of ITC. Furthermore, under the GST regime, reconciliation has been made a mandate for a taxpayer/business who seeks to claim ITC. Although many organisation opt-in for manual reconciliation, which is both time-consuming and prone to manual errors. Thus, the very last step to a smooth ITC claim is opting for a smart and efficient reconciliation application that can scan through all your invoices and generate reconciliation report without any hassle.

IRIS Business, a leading name amongst the GST Suvidha Providers (GSP) in India, offers end-to-end solutions for all your GST filings. IRIS Sapphire, the smart GST filing application from IRIS, supports all major GST form types – GSTR 1, GSTR 3B, GSTR 6, GSTR 7, GSTR 8, GSTR 9 and ITC 04.

Sign up for our free demo or for any queries write to us at support@irisgst.com

 

About Vaishali Dedhia

Vaishali

Vaishali Dedhia, a Chartered Accountant, has been working with IRIS for over 7 years and is currently the lead Functional Analyst and Subject Matter Expert for IRIS' GST offerings. She has also been assisting the clients in return filing related queries. Prior to GST, she was involved in compliance and data analysis for the US markets. In her leisure time, Vaishali likes reading novels, listening music and hanging around with friends, family.

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