Section 20 of the GST (Goods and Services Tax) Act deals with how the credit for input services is distributed by an Input Service Distributor (ISD). Now, let’s break it down in simple terms.
Imagine a big company with multiple branches or divisions. Sometimes, certain services like accounting, IT support, or legal advice are provided centrally for all the branches. This central office, which receives and distributes these services, is known as the Input Service Distributor or ISD.
Section 20 explains how the ISD should distribute the credit for these input services among its different branches or divisions. The purpose is to ensure that each branch or division gets the rightful benefit of the input services received.
Here’s how it works: The ISD collects the invoices or documents for the input services it receives. It then calculates the proportionate amount of the input tax credit attributable to each branch or division based on certain criteria, like turnover or the ratio of their taxable supplies.
Once the credit is calculated, the ISD distributes it among the branches or divisions. It does this by issuing what is called an “ISD invoice” to each branch or division, mentioning the amount of credit allocated to them.
This mechanism ensures that the input tax credit for the services used by different branches or divisions is appropriately distributed among them. Each branch or division can then use this credit to offset their tax liability on their supplies.
In summary, Section 20 of the GST Act explains how an Input Service Distributor (ISD) distributes the credit for input services among its various branches or divisions. It ensures a fair distribution of credit so that each branch or division can benefit from the input services received.
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