In the Goods and Services Tax (GST) regime, managing and optimizing Input Tax Credit (ITC) is crucial for businesses with operations in multiple states or units. One such mechanism introduced to streamline this process is the Input Service Distributor (ISD).
An Input Service Distributor (ISD) is a mechanism under the Goods and Services Tax (GST) that allows businesses to distribute input tax credit (ITC) of common input services to different branches or units located across multiple states or within the same state. It is a centralized office or branch of a business that receives invoices for common input services (like advertising, consulting, HR services, etc.) and then distributes the eligible ITC to other branches or units of the same company that are located in different states or regions.
From 1st April, 2025, it is mandatory to get register under GST as ISD and start complying with ITC distribution and GSTR-6 filing if your entity receives common input service invoices for multiple GSTINs. Please note that – Wherever an entity receives invoices for common input services that pertain to multiple GSTINs, ISD registration becomes necessary for correct ITC distribution. If vendors raise invoices GSTIN-wise, ISD may not be required.
As defined under Section 2(61) of the CGST Act, 2017:
“ISD means an office of the supplier of goods or services or both which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing the credit… to a supplier having the same PAN.”
Suppose a company ABC Ltd. has its head office in Mumbai and branches in Delhi, Bangalore, and Chennai. The Mumbai office receives a consulting service bill for ₹1,00,000 + GST that benefits all branches. Without ISD, only Mumbai can claim this ITC. But with ISD registration, Mumbai can distribute this credit proportionally to all its branches.
Eligibility Criteria for ISD Registration under GST
An entity must meet the following criteria:
- Same PAN Across All Units:
- The office intending to become an ISD must belong to an entity that has multiple GST-registered units (branches, factories, etc.) under the same PAN.
- Receives Input Services (Only):
- The office must receive invoices for input services only (not goods). It cannot distribute ITC for goods or capital goods.
- Does Not Make Outward Supplies:
- The ISD office should not be engaged in supplying goods or services; its sole purpose is to distribute the ITC.
- Centralized Billing/Accounting Office:
- Typically, ISD is the head office or corporate office that handles centralized procurement of services like advertising, security, legal, etc.
- Separate Registration Required:
- The office receiving common input service invoices must obtain a separate ISD registration (distinct from its regular GSTIN) in that state.
Situations where ISD is not Applicable
ISD cannot distribute the input tax credit in the following cases:
- Where ITC is paid on inputs and capital goods. For instance, raw materials and machinery purchased.
- ITC cannot be distributed to outsourced manufacturers or service providers.
Step-by-step Registration Process for ISD
Registration application for ISD is the same as any normal/regular taxpayer, i.e., GST REG-01. ISD cannot take multiple registrations in a State. A composition taxable person cannot register as ISD under GST. Following is the registration process.
Step 1: Visit gst.gov.in website and go to ‘Services’ > ‘Registration’ and select ‘New Registration
Step 2: Fill PART-A for the business details (legal name, trade name, email, PAN, and mobile numbers) and enter the one-time password (OTP) for verification. You will receive a Temporary Reference Number (TRN).
Step 3: Use the TRN to login and fill PART-B for additional business details, registration reason, promoters, authorised signatory, place of business, goods and services dealt with, upload relevant documents, and state specific information. Here, under the ‘Reason to obtain registration’ drop-down under business details tab, select ‘Input Service Distributor’.
Step 4: Submit the ISD registration application with e-verification; receive Application Reference Number (ARN) and, upon approval, obtain ISD GSTIN.
After Registration
- Start issuing ISD invoices to distribute ITC to respective units.
- File GSTR-6 (monthly return for ISDs) by the 13th of the next month.
Conditions for Distribution of ITC by ISD
1. Only Input Services Can Be Distributed
- ISD can only distribute ITC on input services (e.g., advertising, legal, HR).
- ITC on goods or capital goods cannot be distributed via ISD.
2. Credit Must Be Distributed to Eligible Units Only
- The units (branches) must be registered under the same PAN as the ISD and have a valid GSTIN.
- Distribution is only allowed to those branches that use the input service.
3. Distribution Based on Usage
- If the service is used by:
- One branch → distribute only to that branch.
- Multiple branches → distribute proportionately based on turnover.
4. Separate Invoice/ISD Document Required
- The ISD must issue a prescribed document (like an invoice or credit note) when distributing ITC to branches.
- This document should include:
- ISD GSTIN
- GSTIN of recipient unit
- Amount of credit distributed
- Details of the original supplier invoice
5. Proportional Distribution Formula (if used by multiple branches)
- ITC for a branch =
( Turnover of that branch in a state ÷ Total turnover of all branches to whom service is related) * Total ITC
6. Separate GSTIN for ISD
- ISD must be separately registered under GST, even if part of the same entity.
7. Timely Return Filing – GSTR-6
- ISD must file GSTR-6 monthly, showing ITC received and distributed.
8. No Distribution of Ineligible ITC – ISD cannot distribute blocked or ineligible ITC under Section 17(5).
Rules for Distribution of Credit – CGST, SGST, IGST
| Type of ITC | When Recipient & ISD are in Same State | When Recipient & ISD are in Different States |
| CGST | Distributed as CGST | Distributed as IGST |
| SGST/UTGST | Distributed as SGST/UTGST | Distributed as IGST |
| IGST | Distributed as IGST | Distributed as IGST |
Consequences of Non-Compliance with ISD Rules
Failure to obtain ISD registration can have severe adverse consequences, as explained below-
- ITC disruption: Using regular GSTIN over ISD GSTIN for receiving input services can result in an ITC loss.
- Audit and compliance risks: Non-compliance with ISD rules leads to audits and compliance delays.
- Regulatory penalty and Interest: Wrong ITC allocation or applying cross-charge over ISD can trigger GST demand notices under Sections 73/74 of the CGST Act for recovery with an interest charge at 18% p.a. It could attract a penalty of upto Rs.25,000 too. Wrongful distribution of ITC by ISD can also be recovered from the recipient units.” (Rule 39(1)(j), CGST Rules)
Conclusion
The Input Service Distributor (ISD) mechanism under GST plays a vital role for businesses with multiple locations by ensuring smooth and fair distribution of input tax credit on shared services. However, correct registration, accurate credit allocation, and timely compliance—especially filing GSTR-6—are essential to avoid penalties, interest, and tax disputes.
Whether you’re managing a large enterprise or a growing organization, understanding and implementing ISD rules properly can improve tax efficiency and reduce audit risks. Make sure to maintain proper records, follow the turnover-based distribution method, and stay updated with GST regulations to ensure full compliance.
Disclaimer: This article provides a overview of ISD under GST in India. It is intended for informational purposes only and should not be construed as professional advice. Readers should consult a qualified tax advisor for guidance specific to their circumstances.
Author
Ms. Mrunali Warbhe
Intern
Pavan Goyal and Associates (Chartered Accountants)
Office No. B212, GO Square, Mankar Chowk, Wakad, Pune 411057
Email – office@goyalca.com
Contact – 9762763351