On September 27, 2024, the Finance Department of Rajasthan issued an important notification regarding the amendment of the Rajasthan Goods and Services Tax (GST) Rules, 2017. This amendment, known as the Rajasthan Goods and Services Tax (Second Amendment) Rules, 2024, introduces significant changes, particularly in the way Input Service Distributors (ISDs) handle the distribution of input tax credit.
Input Service Distributors
Before diving into the amendments, it’s essential to understand the role of Input Service Distributors in the GST framework. An ISD is a registered person who receives tax invoices for input services used by various units of the same legal entity. The ISD can then distribute the input tax credit (ITC) to these units, enabling seamless tax credit management across different locations.
Key Amendments in Rule 39
1. Distribution of Input Tax Credit
One of the most crucial changes is in Rule 39, where the sub-rule (1) has been replaced with more detailed provisions on how ISDs should distribute input tax credit. The new guidelines stipulate:
- Timely Distribution: The ITC available for distribution must be allocated within the same month it is available, and details must be reported in FORM GSTR-6.
- Limit on Distribution: The amount of credit distributed cannot exceed the total available credit.
- Attribution to Recipients: Credit attributable to a specific recipient must only be distributed to that recipient, ensuring precise allocation.
2. Pro Rata Distribution
In cases where credit is attributable to multiple recipients, the distribution will occur on a pro-rata basis based on the turnover of each recipient during the relevant period. This ensures a fair distribution aligned with the actual business activity of each recipient.
3. Calculation Formula
The amendment introduces a specific formula for calculating the credit to be distributed to a particular recipient (referred to as “R1”):
C 1 = (t 1 / T) x C
Where:
- C = Total credit available for distribution
- t1 = Turnover of R1 during the relevant period
- T = Total turnover of all recipients attributable to the input service
4. Separate Distribution of Eligible and Ineligible Credits
ISDs are now required to separately distribute eligible input tax credit from ineligible credit, ensuring clarity in tax obligations and compliance.
5. Specific Tax Distribution Rules
The amendment also clarifies how different types of taxes (central tax, state tax, integrated tax) should be distributed:
- Integrated tax credits will be distributed as integrated tax to every recipient.
- Central and state taxes for recipients located in the same jurisdiction will be allocated accordingly. For those in different jurisdictions, the credit will be distributed as integrated tax.
6. Invoice and Credit Note Requirements
The amendment mandates that the ISD must issue an invoice specifically for the distribution of input tax credit. Additionally, if the credit needs to be reduced (for example, due to a credit note from a supplier), a credit note must also be issued to reflect this change.
New Provision for Common Input Services
A noteworthy addition is the introduction of sub-rule (1A), which allows registered persons with the same PAN and State code as an ISD to issue invoices or credit/debit notes to transfer the credit of common input services. This flexibility enhances the efficiency of credit management among distinct persons operating under the same legal umbrella.
Explanation of Key Terms
To facilitate a better understanding of the amended rules, the notification provides definitions for terms such as:
- Relevant Period: This can refer to either the financial year preceding the distribution if turnover exists or the last available quarter prior to the month of distribution if no turnover exists.
- Recipient of Credit: Defined as the supplier with the same PAN as the ISD.
- Turnover: Represents the value of turnover, reduced by specific duties or taxes.
The Rajasthan Goods and Services Tax (Second Amendment) Rules, 2024, represent a significant step towards enhancing the efficiency and clarity of input tax credit distribution. By providing detailed guidelines on credit allocation, the government aims to streamline compliance for businesses operating within the GST framework
