Input service under gst

GST - In input Service Distributor

Introduction        

 (ISD) input service distributor means an office of the supplier of goods or services or both which receives tax invoices towards receipt of the purpose of distributing the credit services to a supplier of taxable goods or services or both having same PAN as that of the ISD

It is important to note that the ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods), Companies may have their head office at one place and units at other places which may be registered separately. The head office would be procuring certain services which would be for common utilization of all units across the country.

The bills for such expenses would be raised on the Head office. But the Head office itself would not be providing any output supply so as to utilize the credit which gets accumulated on account of such input services.

Since the common expenditure is meant for the business of all units, it is but natural that the credit of input services in respect of such common invoices should be apportioned between all the consuming units.

ISD mechanism enables such proportionate distribution of credit of input services amounts all the consuming units.

The concept of ISD under Gst is a legacy carried over from the Service Tax Regime. An ISD and apply for the same in form GST REG-1. There is no threshold limit for registration for an ISD. The other locations may be registered separately. Since the services relate to other locations the corresponding credit should be transferred to such locations (having separate registrations) as the output services are being provided there.

For input tax credit distributing purposes, an ISD has to issue an ISD invoice, as prescribed in rule 54 (1) of the CGST Rules, 2017, clearly indicating in such invoice that it is issued only for distribution in a month shall be distributed in the same month and details furnished in form GSTR -6, further, an ISD shall separately distribute both the amount of ineligible and eligible input tax credit. 

The input tax credit on account of central tax and State tax or UT tax in respect of recipient located in the same state shall be distributed as central tax and State tax or UT tax

 respectively. The input tax credit on account of central tax and State tax or UT tax shall, in respect of a recipient located in State or Union territory other than that of the ISD, be distributed as

 integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of cental tax and State tax or Union territory tax that qualifies for distribution to such recipient. The input tax credit on account of integrated tax shall be distributed as integrated tax.

Let's take an example to understand this concept.The Corporate office of ABC Ltd.,is at Bangalore, with its business, locations of spelling and servicing of goods at Bangalore, Chennai,Mumbai and Kolkata.Software license and maintenance is used at all the locations,but invoice for these services (indicating CGST and SGST) are received at Corporate Office.Since the software is used at all the four locations, the input tax credit of entire services cannot be claimed at Bangalore. The same has to be distributed to all the four locations. For that reason, the Bangalore Corporate office has to act as ISD to distribute the credit.                                                                                                  If the corporate office of ABC Ltd. an ISD situated in Bangalore receives indicating Rs. 3 lakh of Central tax Rs. 3 lakh of state tax and Rs. 6 lakh of integrated tax it can distribute central tax, state tax as well as integrated tax of Rs.12 lakh as credit of integrated tax amongst its location at Bangalore, Chennai, Mumbai and Kolkata through an ISD invoice containing the amount of credit distributed.                                                                                   So in what ratio will the credit be distributed by the ISD?                                                                                                      The credit has to be distributed only to the unit to which the supply is directly attributable to. If input service is attributable to more than one recipient of credit, the distribution to more than one recipient of credit, the distribution shall be in the

 pro-rata basis of turnover in the State/Union Territory. For example, if an ISD has 4 units across the country. However, if a particular input service pertains exclusively to only one unit and the bill is raised in the name of ISD,the ISD can distribute the credit only to that unit and not to other units, then it will be distributed according to the ratio of turnover of all the units. The following illustration will clarify the issue.            

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Explained of Karnataka GST crackdown

Explained of Karnataka GST crackdown: What UPI really reveals and why cash - only won't help

Going cash-only won't save Karnataka traders from the GST net - not when digital payment data already reveals the scale of their business,

In a sweeping enforcement drive, Karnataka's Commercial Taxes Department has issued a wave of GST demand notices to small traders across the state, triggering panic - and a widespread shift to "cash-only" operations. But officials have now made it clear: the mode of payment doesn't matter - it's your total turnover that counts

Caught off- guard, many vendors in Bengaluru and beyond - including tea stalls, bakeries, and market shops - began refusing UPI payment altogether, fearing tax liabilities running into lakhs or crores. Sign reading "NO UPI" have popped up across city markets,

Trader associations have called for a statewide bandh on July 25, 2025, protesting what they allege are excessive and arbitrary tax demands.

Official have been instructed to guide traders, particularly those dealing in exempt items like fruits or bread, and to ensure only legitimate tax is demanded. Still failure to respond to notices can trigger penalties or recovery actions.

But tax officers warn that this approach is flawed and ineffective. Going cash - only doesn't grant exemption. All income, whether digital or cash, must be included when calculating GST ELIGIBILITY.

"The traders are advised, not to get confused and to submit explanation with relevant documents after visiting the office from where they have received notice and the officers would verify them and suitably inform the relevant provisions of the GST and also their remedies ad would levy tax at the applicable rates only on the taxable turnover after excluding the tax exempted goods and services.

In future, it would not be difficult for the registered persons to pay tax at 1% under the composition scheme. The number of persons to whom notices or intimations are issued recently are less than 10% of the already registered taxpayers under composition scheme. So the majority of such dealers are already paying taxes as per law"

When is a trader required to register for GST?

" As per Section 22 of the Goods and Services Tax Act, 2017, every person who carries on a business activity and receives payment by way of cash. PI, POS Machine, Bank payment or by any other means exceeding Rs 40 lakh annually in case of a person dealing only in goods and exceeding Rs 20 lakh annually in case of persons dealing in services have to obtain GST REGISTRATION MANDATORILY.

The aggregate turnover, in case of a person who has obtained GST registration under the regular scheme, would include the taxable and tax exempted goods and services. If the person ha obtained registration under the regular scheme, the tax is leviable only on the taxable goods and taxable services only.

In continuation, any person whose annual turnover is less than Rs. 1.5 crore can opt for composition tax scheme after obtaining GST registration and can pay SGST AT 0.5% But, the composition tax scheme is not applicable on the turnover made without obtaining registration."

Routine enquiry

The GST authorities are afforded with wide powers to call for information from any person, required to undertake enquiry in relation to any contravention.

They also have the power to summon any person to furnish any document or produce any evidence, which they may require to undertake their enquiry.

The press release issued by the Karnataka Commercial Tax Department does not provide any clarity on this.it appears that the payment data of traders may have been collected from various payment aggregators (UPI services).

While there is a procedural requirement for the officers to issue a notice to the person from whom information is sought, after obtaining written approval from the Commissioner, there is uncertainty on whether this process has been followed in these recent instances.