Finance Bill 2024 has proposed an amendment for mandatory input service distributor (ISD) registration for firms with branches to claim input tax credit.

Under the GST regime, several disputes have risen in the past over which methodology should be used, so that tax credit pertaining to common input services can be availed.

Big corporations are typically spread across cities, with branches in several states. Under GST, branches are considered as separate legal entities. However, certain input services could be procured by the head-office and used by it as well as branches.

The input tax credit available against the service procured cannot be used by the head-office alone but has to be appropriately attributed to its branches too.

Until now, the head office could either cross charge and bill the branches or adopt the Input Service Distributor (ISD) mechanism to transfer the appropriate input tax credit.

The interim budget bars sharing of input tax credit by a head office with its branches in respect of common input services procured from third parties.

It has now made the mechanism of ISD mandatory.