GST Changes by Budget 2024: The Complete Analysis

Background:

There is an ISD mechanism in GST Law, which prescribes the rules and regulations including separate registration requirement for availment of common ITC by Head office on behalf of its branches / distinct persons and then distribute such ITC to respective branches / distinct persons under same PAN.

However as per wordings of current GST Law, ISD provisions were not mandatory. So out of own convenience & comfort, many taxpayers chose not to opt for ISD Rules and rather they were availing & distributing such ITC under normal GST rules vide cross charge. So there was a lot of confusion and debate among taxpayers, as to which approach is right and which approach is wrong.

Upon seeing also this confusion among taxpayers, on 17th July 2023, CBIC came forward and issued a Circular (Circular No. 199/11/2023) confirming that ISD route is not mandatory under present GST provisions and clarified that HO has the flexibility to distribute ITC for common input services either through the ISD mechanism or cross charge.

Proposed Changes in Budget:

Now Government seeks to mandate compulsory registration by ISD under ISD Provisions for procurement of common services on behalf of branches / distinct persons, availing its ITC and then finally distribute such ITC to branches/distinct persons under same PAN.

The proposed changes mandates the distribution of such ITC under ISD provisions only. This amendment seeks to bring uniformity in ISD related compliances by all taxpayers.

Change 1) Earlier RCM invoices were not included in clause (61) of section 2. The proposed amendment seeks to include RCM invoice compulsorily under ISD mechanism for the purpose of distribution of ITC on such invoices by HO to branches through ISD mechanism only.

After such amendment, whatever tax an ISD pays under RCM, he can distribute such ITC to branches under ISD rules only. No other mode will be allowed like cross charge etc.

Change 2) Earlier the words 'and issues' were used in clause (61) of section 2. Now the proposed amendment seeks to replace it with "and liable".

This shifts the entire ISD paradigm from a taxpayer's liberty to compulsion.

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Budget Changes

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Cross Charge

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