New ISD Registration Requirement for GST Taxpayers from April 2025

GST Taxpayers Must Register as ISD for Common ITC Distribution

Introduction

Starting April 1, 2025, GST taxpayers registered in multiple states must register as Input Service Distributors (ISD) to distribute common Input Tax Credit (ITC). This requirement, outlined in Notification No. 16/2024 – Central Tax and The Finance Act, 2024, aims to streamline ITC distribution across different branches of a business.

Key Points

1. Effective Date: April 1, 2025.
2. Who is Affected: Taxpayers with GST registrations in more than one state.
3. Legislation: Section 24(viii) of the CGST Act, 2017, and sections 11 and 12 of The Finance Act, 2024.

What is an ISD?

An ISD is a GST-registered office that receives tax invoices for input services and distributes the ITC to various branches or units within the same PAN. This process ensures efficient utilization of ITC across a business.

Compliance Steps

1. ISD Registration

• Process:
  • Log into the GST portal.
  • Select ‘New Registration.’
  • Choose ‘Input Service Distributor’ and submit the application.

2. Distributing Common ITC

• Receiving Invoices: Collect tax invoices for input services.
• Issuing ISD Invoices: Distribute ITC to the respective GSTINs of distinct persons.
• Maintaining Records: Keep accurate records of ITC distribution for transparency and compliance.

3. Follow Guidelines

The Central Government will provide specific guidelines on conditions, timeframes, and restrictions for ITC distribution. Businesses must adhere to these to ensure compliance.

Benefits of ISD Registration

• Efficient ITC Utilization: Reduce tax liability and improve cash flow.
• Simplified Compliance: Centralized ITC distribution lowers administrative burdens.
• Enhanced Transparency: Detailed records and systematic distribution aid in GST audits.

Conclusion

The mandatory ISD registration and ITC distribution starting April 1, 2025, require proactive compliance. Understanding these requirements and preparing accordingly will help businesses leverage the benefits of efficient ITC utilization and simplified compliance processes.

For more information please refer below circular :

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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

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