The government has introduced a new rule in the Union Budget 2024, which will make Input Service Distributor (ISD) registration mandatory for businesses that distribute input tax credit (ITC) across multiple branches.
This rule, effective from April 1, 2025, aims to streamline the tax distribution process for businesses with GST registrations in two or more states.
What is Input Service Distributor (ISD)?
An Input Service Distributor (ISD) refers to a registered business that receives invoices for input services and distributes the tax credit to its various branches.
Previously, ISD registration was optional for such businesses. However, under the new rule, businesses that distribute ITC to their branches across different states must now register as an ISD under GST.
Why is this change being made?
Until now, businesses could distribute tax credits without having an ISD registration, which led to compliance challenges and potential misuse of ITC claims.
The government’s aim is to enhance transparency, improve compliance, and prevent the misuse of input tax credits by making ISD registration mandatory.
What Should Businesses Do?
Apply for ISD Registration: If your business has multiple GST registrations under the same PAN across different states, you will need to apply for ISD registration.
Maintain Complete Records: Businesses must keep detailed records of invoices and the distribution of ITC to ensure compliance with the new rules.
File ISD Returns: Businesses will need to file ISD returns in Form GSTR-6 regularly. This will disclose the distribution of ITC to the different branches.
This change is intended to ensure more organized and compliant tax credit distribution, reducing the chances of errors and misuse.
