The Manner of Distribution of credit through ISD mechanism under GST: ISD shall distribute the credit available for distribution in the same month and details of such distribution shall be furnished in Form GSTR-6. (This condition was not there under the earlier service tax regime)
Credit shall be distributed against a document issued in terms of Rule 54 of the GST Rules. Such invoice should, clearly indicate that, it is issued only for distribution of input tax credit. The contents of tax invoice to be issued by ISD are given below
- Name, address and Goods and Services Tax Identification Number of the Input Service Distributor
- a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters- hyphen or dash and slash symbolised as- “-”, “/” respectively, and any combination thereof, unique for a financial year (this condition is exempted in case of banking company and financial institutions)
- date of its issue;
- name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed
- amount of the credit distributed
- signature or digital signature of the Input Service Distributor or his authorised representative
The amount of credit shall not exceed the amount available for distribution.
The ISD shall first identify the credit which is not allowed in terms of section 17(5) or otherwiseand distribute the ineligible credit and eligible credit separately.
The ISD shall first identify the credit which is not allowed in terms of section 17(5) or otherwiseand distribute the ineligible credit and eligible credit separately. The eligible quantum for distribution to recipient unit is explained later.
The credit of tax paid on input services attributable to a specific recipient of credit shall be distributed only to that recipient only. Thus, in the above example, since P and Q have provided services to Delhi establishments, the credit in respect of services received from them shall be distributed to Delhi unit only and not to any other establishment.
The credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro 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 such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period.
The credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro 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.
For the purpose of computing “turnover”, the turnover of goods not taxable under this Act shall also be included. However, while computing such turnover, the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule, shall be excluded.
The term ‘relevant period’is defined as under:
| Situation | What is relevant Period. |
| 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
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 said preceding financial year.
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 |
The credit that qualifies for distribution is to be computed using the formula given in Rule 39(1)(d) which is given below:
- C1 = (t1 / T) x C
- C = amount of total credit to be distributed.
- t1 = turnover of recipient R1 during relevant period.
- T = the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable.
- C1= the input tax credit that is required to be distributed to recipient R1 (whether registered or not)
The above formula should be applied for every type of tax viz. Central Tax, State Tax, Union Territory Tax and Integrated Tax.
The ISD shall be required to distribute the credit as under:
| Credit available with ISD | Recipient unit is located in same state as that of ISD | Recipient unit is located in different state than that of ISD |
| Central Tax | CGST | IGST |
| State Tax | SGST | IGST |
| UT Tax | UTGST | IGST |
| Integrated Tax | IGST* | IGST |
*It’s important to note that, section 20 permits distribution of Integrated Tax either as IGST or CGST or SGST. However, Rule 39(1)(e) permits distribution of ITC of integrated tax as IGST only.
It may be noted that, Rule 39 that mandates, distribution of the credit to all the recipients to whom credit is attributable, although such units are not registered under the Act, in spite of the fact that, registration under the Act is a condition for availment of ITC u/s 16. Besides, it also mandates distribution of “ineligible credit”. Such “ineligible credit includes ineligible credit under the provisions of section 17(5) or otherwise.
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