GST New Rules: Major rules of GST are going to change from April 1. A new system will be implemented. Read it now because there can be huge losses later.
GST New Rules: The Government of India has made a big change in the rules of Goods and Services Tax (GST). Under this, the Input Service Distributor (ISD) system is going to be implemented from the new business year i.e. April 1, 2025. With the help of this system, the state governments will collect the appropriate amount of tax on the shared services being provided at one place. According to experts, the purpose of this change is to guarantee the correct distribution of tax revenue among the states.
What is ISD mechanism?
The CGST Act has been amended under the Finance Act (No. 1) of 2024 for the ISD mechanism. This mechanism allows businesses operating in multiple states to centralize invoices of common input services (whether domestically obtained or imported) at one branch or headquarters. This facilitates equal distribution of the respective input tax credits among the branches using these shared services.
What is Input Tax Credit?
Input Tax Credit (ITC) is the tax paid on business purchases, which can be deducted while paying tax on output tax. It represents the GST amount paid on goods or services used by a registered individual for business purposes. Using input tax credit reduces the GST liability for goods or services sold by a registered individual.
Earlier, businesses had the option to use the ISD mechanism or cross-charge method to allot common ITC to their other GST registrations. If the ISD mechanism is not used, ITC will not be given for the recipient location. Tax authorities can recover the amount along with interest from the recipient locations for wrong distribution of ITC. For irregular ITC distribution, a penalty of the amount of ITC or Rs 10,000, whichever is higher, will have to be paid.
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