The Union Finance Minister Nirmala Sitaraman presided over the 50th meeting of the GST Council today (11th July 2023) at Vigyan Bhawan in New Delhi including Revenue Secretary and CBIC chairman.
The Council provided clarification that the distribution of input tax credit of common input services obtained from third parties to distinct persons through the Input Services Distributor (ISD) mechanism is currently not compulsory under the existing provisions of GST law. However, it will be mandatory in the future once the GST law has been amended.
The council explicitly stated that the future mandatory implementation of the ISD mechanism will only apply to future transactions and will not have a retrospective effect.
In the press release, it has been mentioned that “The Council has recommended to clarify through a circular that Input Services Distributor (ISD) mechanism is not mandatory for distribution of input tax credit of common input services procured from third parties to the distinct persons as per the present provisions of GST law, and also to clarify issues regarding taxability of internally generated services provided by one distinct person to another distinct person.
The Council has also recommended that an amendment may be made in GST law to make ISD mechanism mandatory prospectively for distribution of input tax credit of such common input services procured from third parties.”
The ISD mechanism, within the framework of the Goods and Services Tax (GST) system, enables a registered taxpayer to allocate the input tax credit (ITC) of shared input services to separate entities or branches of the same organization.
Acting as a central entity, the ISD facilitates the fair and systematic distribution of ITC among eligible recipients within the organization. This mechanism promotes efficiency by ensuring that the ITC for common input services is appropriately allocated across different units or branches.
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