GST new rules: The Government of India has made a big change in the Goods and Services Tax (GST) rules. Under this, the new business year i.e. from April 1, 2025, the input service distributor (ISD) system will be implemented. With the help of this system, the state governments will be able to charge a proper tax on shared services provided at one place. According to experts, the purpose of this change is to ensure proper distribution of tax revenue among the states.
What is ISD Tantra?
The CGST Act has been amended under the Finance Act (No. 1) 2024 for providing ISD mechanisms. This method allows businesses operating in many states to centralize the invoice of general input services (whether from local source or imported) to the same branch or headquarters. This leads to equal distribution of relevant input tax credit between branches using these shared services.
What is input tax credit?
Input tax credit (ITC) is a tax on commercial procurement, which can be reduced while paying tax on output tax. This reflects the GST amount paid by a registered person on goods or services used for business purposes. Using input tax credit reduces GST liability on goods or services sold by the registered person.
Earlier, businesses had the option to use the ISD mechanism or cross-matching method to allocate general ITC to their other GST registrations. If the ISD mechanism is not used, ITC will not be given for the location of the recipient. In case of incorrect distribution of ITC, the tax officer can charge the amount including interest from the recipient location. For irregular ITC disbursement, ITC amount or ₹ 10,000, whichever is higher, will have to be fined.
