Whether RCM Related Input can be transferred by Input Service Distributor – Know the complete Fact

1. Change in the Definition of Input Service Distributor :

• • Earlier Section 2(61) of CGST Act : Input Service Distributormeans an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.

• • New Section 2(61) of CGST Act,1961 after Substitution : “Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20.

Effect of the Change : Earlier Input Service Distributor can only distribute the ITC on Account of Forward but now proposal has been made in finance bill 2024, and government has proposed that now RCM related input can be transferred by the office of input service distributor. Through that now ISD office can distribute RCM Related Input as well.

Benefit : Through this provision there will be no any accumulation of ITC in Input Service Distributor Office.

2. Section 20 of CGST Act,2017 : Section 20 of CGST Act has been substituted with following language for suggesting the manner of distribution of Input tax credit by the office of Input Service Distributor. 

• • Section 20(1) : Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.
  • Section 20(2) : The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.
  • Section 20(3) : The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be prescribed.

Effect of the Substitution :  Through this Proposal government has announced the manner of distributor of Input tax credit in case of ISD. In this section they had just proposed the mechanism of transfer of Input tax credit in case of RCM.

Author By:

CA. SACHIN JAIN