Q. Will businesses be required to maintain separate books for ISD and cross-charging?
A. Yes, according to Section 35 every registered person is required to maintain books of accounts. ISD should have records of receipt & transfer of ITC.
Q. Is Rule 54(1A) the standard route or an exception?
A. Rule 54(1A) was intended for RCM transactions only as discussed in council meeting. However, language of Rule doesn’t make it express. In our opinion, it should be used as an exception only given the intention of the ISD mechanism and the GST Council meeting minutes.
Q. We have two registrations under GST in India. We supply goods from one registration based in Gujarat, while the second one, in Chennai, is solely an R&D center that does not supply or render any services. Should we opt for ISD?
A. In case you receive common services, technically you are required to take ISD registration. However, entire ITC will be transferred to Gujarat Unit only, since Chennai Unit has NIL turnover.
A company has registrations in multiple states but has centralized all its procurements and billing at the head office. As a result, there is no outward supply in other states. How would the ISD mechanism work in this scenario?
A. In case there is no supply in other Units, all such common ITC will be ultimately distributed to the Unit having supply.
Q. Is the matching concept of ITC mandatory for ISD?
A. ITC will appear in GSTR-6A of ISD which shall have to be matched and then distributed.
Q. If matching is required, how can the ITC balance be nil?
A. Only ITC pertaining to ISD will be distributed. There is no requirement that ITC balance should be NIL. Only requirement is ISD should distribute ITC in the same month of its receipt. The amount shown as “Total ITC received for distribution” shall have to be equal to “ITC Distributed”.
Q. Is it mandatory to distribute ITC appearing in GSTR-6A within the same month? If yes, how should cases be handled where the invoice is still under the accounting process and has not been booked?
A. According to Rule 39(1) (a), ITC availabe for distribution should be distributed in same month. However, in cases where ITC is not available in books of accounts for distribution, such ITC can be distributed in subsequent month.
Q. Should airline services be considered under ISD?
A. If consolidated invoice is raised by the airline for multiple travels used by multiple Units, it will be distributed through ISD. If airline ticket is raised to specific Unit, no need to distribute ITC through ISD.
Q. The head office has a contract with a travel agent who books airline tickets for all branches. Should airline invoices be processed through the ISD route, or would cross-charging be a better option?
A. Cross Charge cannot be used for transfer of ITC pertaining third party services from April 1, 2025. If travel agent has given consolidated invoice, it should be raised to ISD and then ITC should be distributed to all Units in turnover ratio. To avoid this, travel agent can raise separate invoice to each Unit based on each unit’s consumption.
Q. Can the basis of distribution be changed during the year? Can a one-to-one distribution be done for specific services in the respective state instead of the turnover-based method adopted?
A. If any invoice received by the ISD pertains to a specific unit, the distribution shall be made at 100% ratio to that unit. However, if an invoice pertains to more than one units, Turnover ratio is the only bais of ITC distribution. One to one or use base distribution is not allowed under ISD. ITC will be distributed to all beneficiary Units in turnover ratio of previous financial year.
Q. In the case of RCM liability invoiced to ISD, how should the RCM liability payment be made? Should the payment be done through the e-Cash ledger for ISD?
A. Currently, this process is not available on GSTN portal. RCM should be paid through normal registration and then transferred to ISD according to Rule 54(1A). Subsequently ISD will distribute such ITC to the recipient locations
Q. How should the ratios be determined for the distribution of ISD?
A. Ratio will turnover of previous financial year of all eligible Units.
If a new registration (new GSTIN) has been added in the current Financial Year, such registration would not have a turnover in the previous financial year, therefore the law provides that in such cases, the turnover of the last quarter, previous to the month during which credit is to be distributed shall be taken.
Q. Is IRN mandatory for invoice distribution?
A. E-Invoice is not required for ISD invoice.
Q. What would be the consequences if ineligible ITC has not been distributed through ISD?
A. There are no specific consequences mentioned in the law. Authorities may levy general penalty and Units may receive notice for non-declaration of ineligible ITC in GSTR-3B.
Q. How to transfer ITC from regular GSTIN to ISD GSTIN?
A. Via credit transfer document issued as per Rule 54(1A) of the CGST Rules.
Q. Why is GSTR-6A required again when issues were already observed with GSTR-2A, leading to the introduction of GSTR-2B?
A. As of now, for ISD, only GSTR 6A has been made available and there is no communication on having a form similar to GSTr 2B for ISD inward purchases
Q. Will IMS be linked to GSTR-6A?
A. Currently no, you cannot take actions like you do in IMS for flowing credit to GSTR 6A.
Q. What is the SAP T-code for ISD distribution? Is it a standard SAP feature or a customized?
A. SAP cockpit has been developed by Cygnet team for facilitating distribution of ITC
Q. The head office (HO) and factory operate under a single GST registration within Maharashtra, requiring an ISD registration. The HO receives invoices for common input services such as professional fees, rent, and software. How should the ISD mechanism be applied in this case?
A. If there are no other Units with separate GSTINs, there is no requirement for ISD registration in this case.
Q. Is it mandatory to have a separate invoice series for ISD invoices, ISD debit notes, and ISD credit notes?
A. ISD will issue ITC distribution invoice, which is different from invoice issued for supply of goods or services. Therefore, it is mandatory to have separate invoice series for ISD invoices and ISD Credit notes. There is no concept of Debit Note in ISD, an ISD invoice shall only have to be issued.
Q. Which financial year’s turnover should be considered for ISD distribution when the credit is availed in the books in the current FY (2023-24) but the distribution occurs in the next FY (2024-25) due to the supplier uploading the FY 2023-24 invoice in FY 2024-25?
A. Turnover ratio of financial year previous to year of distribution is used. Therefore, turnover ratio of FY 2023-24 will be used in this case.
Q. How should ITC be distributed to an SEZ location under the same PAN?
A. There is no such exception, ITC will be distributed to SEZ Unit, which may claim refund of ITC.
Q. In the case of ITC distribution from HO to SEZ units, can the SEZ unit take full credit for the ISD invoice, or does it need to identify whether the expense is for authorized operations?
A. ITC is available to SEZ Unit for all authorised and non-authorised operations.
Q. Assuming a company has both a normal registration and an SEZ registration, should ISD credit be distributed to the SEZ unit from the regular registration? What benefit would the SEZ unit derive from this ITC when its output is primarily exports?
A. If common services are used by SEZ Unit, ITC will be distributed to SEZ Unit as well. SEZ Unit can claim refund of ITC for export of goods or services.
Q. Can ISD registration be obtained before April 1, 2025?
A. Yes, ISD provisions are there in GST law since its inception. It is advisable to obtain the registration well in advance and communicate to all vendors to ensure seamless issuance of invocies to ISD by the vendors
Q. Once an ISD registration is obtained, is cross-charging still permissible, or does the registration require its discontinuation?
A. As per clarification issued by CBIC, cross charge is not mandatory for internally generated services where there is free flow of ITC and only businesses having exempt supplies shall be required to follow cross charge of internally generated services. Further, ISD is required for distribution of third party services. Post April 1, 2025, both cannot be used interchangeably.
Q. Can head office (HO) rent expenses be distributed through ISD, or is it mandatory to process them under cross-charge?
A. HO rent is not a common expense used by other Units, therefore not required to be distributed through ISD or cross charge. It can form part of internally generated services provided by HO to other Units.
Q. Certain services are common and subject to Reverse Charge but are barred from ITC claims under Section 17(5). How should such credit be distributed?
A. Till there is no functionality to pay GST under RCM by ISD on GSTN portal, GST will be paid under RCM in normal GST registration as per Rule 54(1A), then ineligible ITC will be transferred to ISD, which will further distribute this to all eligible Units.
Komal Vithalani
Content Writer
Komal Vithalani, a Chartered Accountant and Commerce graduate, is a dedicated professional committed to delivering value with years of expertise in navigating the complexities of indirect tax laws. Her practical excellence includes managing perplexed litigations, dispensing tactical tax advice, conducting thorough compliance checks, supervising audits, and crafting articulate and insightful content. At Cygnet, Komal seamlessly blends her profound understanding of tax regulations with cutting-edge tax technology. Leveraging her competence, she adeptly transforms complex tax tech jargon into concise, impactful, and engaging content. This not only aids readers in comprehending tax-related topics with enlightening clarity but also ensures the delivery of narratives that resonate broadly.
