New GST rules effective April 1: Key changes for businesses
What's the story
The Indian government has announced major changes to the Goods and Services Tax (GST) rules, effective April 1, 2025.
The new rules introduce the Input Service Distributor (ISD) system to assist state governments in accurately collecting tax on shared services provided at a single location.
This comes as part of the Finance Act (No. 1) of 2024 which amended the Central Goods and Services Tax (CGST) Act to enable ISD implementation.
Centralized invoicing
ISD system: A boon for multi-state businesses
The ISD system aims to help businesses operating in multiple states to centralize invoices for common input services at one branch or headquarters.
This mechanism ensures fair distribution of Input Tax Credit (ITC) among branches availing these common services.
ITC is the tax paid on business purchases which can be deducted from output tax liability. It applies on GST paid on goods/services used for business.
Compliance changes
Mandatory ISD system: A shift in ITC distribution
Under the new ISD system, businesses have to use this mechanism instead of the cross-charge method for distributing ITC across branches.
If a business fails to implement ISD, it won't be able to claim ITC at recipient locations.
Non-compliance with these rules could lead to penalties such as interest charges or a fine of ₹10,000 or the ITC amount (whichever is higher).
Tax distribution
Importance of ISD system in GST rules
The introduction of the ISD system is viewed as a major step toward ensuring transparent and fair tax distribution across states.
Businesses are encouraged to revise their tax compliance processes ahead of the new rules coming into effect on April 1, 2025.
The government hopes these changes will streamline GST operations and improve tax collection efficiency across the country.