FAQs on Input Service Distributor under GST

Cross charge pertains to the supply of goods or services between distinct persons (entities with the same PAN but different GSTINs) within the same legal entities.These are internal transactions, like a HO providing centralised accounting or IT support to its branches, and are treated as a supply even without consideration.

ISD, on the other hand, is a mechanism for distributing ITC on input services received from external vendors by a centralised office that are attributable to multiple distinct persons such as branches. 

Essentially, cross charge deals with the value of internally provided services, while ISD deals with the distribution of tax credit on externally sourced services.

What types of businesses need ISD registration?

Your business likely needs ISD registration if:

1. You have multiple GSTINs under one Permanent Account Number (PAN).
2. You receive invoices for services utilised across multiple branches or units. These are common input services such as advertising, legal, consulting, or software services.
3. Centralised service costs are incurred at the head office and distributed among branches.
4. You currently use cross-charge methods for ITC allocation related to common services from external vendors.
5. The GST law mandates ISD registration for distributing ITC related to these services, regardless of turnover thresholds.

Yes, both ISD and Cross Charge will coexist. Cross charge will still be used for internally generated services provided by the HO to its branches.

ISD will be used for distributing ITC on eligible/ineligible input services procured from external vendors that benefit multiple GSTINs under the same PAN.

The ITC available for distribution should be done on a monthly basis. The manner of distribution is as follows:

1. The credit is distributed to the distinct persons in the same proportion as their turnover in the preceding financial year to the aggregate turnover of all such distinct persons during the same period.
2. If a recipient unit did not have turnover in the preceding financial year, the turnover of the last quarter for which details of all recipients are available, previous to the month of distribution, is used.
3. The ISD needs to identify and separately distribute eligible and ineligible ITC. This should be clearly mentioned when transferring the credit.
4. Details of distribution are to be furnished in form number GSTR-6 before the 13th day of the subsequent month.
5. A nil return must be filed even if no ITC is available for distribution in a month.

An entity acting as an ISD has several responsibilities:

1. Obtain a separate GST registration specifically for ISD purposes. 
2. Ensure that invoices for common input services are issued with the ISD's GSTIN. You might need to instruct your vendors accordingly.
3. Avail ITC only on the invoices appearing in GSTR-6A
4. Identify and segregate eligible and ineligible ITC for distribution.
5. Distribute the credit on a monthly basis.
6. Issue an ISD invoice to the recipient units for the credit distributed. This invoice must contain specific details as per Rule 54 of CGST Rules.
7. File a monthly return in GSTR-6 by the 13th of the next month, even if no ITC is distributed.
8. Ensure the amount of ITC distributed does not exceed the ITC available.
9. Issue ISD credit notes if distributed ITC needs adjustment.

1. Assess if they meet the criteria for mandatory ISD registration.
2. Obtain ISD registration(s) for the office(s) that receive invoices for common input services. Note that only the office receiving invoices on behalf of other branches needs ISD registration; separate registration is not required in each state where units are located, unless multiple offices independently receive such invoices.
3. Identify all common input services and those specific services where the invoice is received by one GSTIN but pertains to another.
4. Inform vendors providing common services to issue invoices with the ISD GSTIN. Update purchase orders and work orders accordingly.
5. Ensure their ERP or accounting systems can correctly handle and account for invoices received under the ISD registration and facilitate ITC distribution. This may involve configuring separate business places for ISD transactions.
6. Establish a process for monthly monitoring and reconciliation of invoices reported by vendors (through GSTR-6A) with their records.
7. Determine the turnover ratio for all distinct persons to facilitate the pro-rata distribution of ITC.
8. Train accounting teams on the new processes and compliance requirements related to ISD.

What details must an ISD invoice contain?

ISD invoices must contain the following details:

1. Name, address, and GSTIN of the ISD.
2. Consecutive serial number (unique for the financial year).
3. Date of issue.
4. Name, address, and GSTIN of the recipient unit.
5. Amount of ITC distributed (separately for CGST, SGST/UTGST, or IGST).
6. Clear indication that the invoice is issued only for ITC distribution (e.g., marked as "ISD Invoice").
7. Original invoice number and GSTIN of the supplier.
8. Taxable value (must match the original invoice).
9. Signature or digital signature of the ISD’s authorised representative.

Common services are typically those:

1. Received by one office (usually HO) but benefits multiple units.
2. Not consumed at the office that received the invoice.
3. From third parties (externally generated).
4. With invoices booked centrally. Examples include audit, advertising, software, legal, and marketing expenses that benefit multiple states.

ISD is for externally generated services where the invoice is received at one location, but the benefit is derived by other distinct persons.

Cross-charge is for internally generated services provided by one distinct person to another within the same legal entity.

Failure to register as an ISD when required can lead to:

1. Penalties and interest liabilities for incorrect ITC distribution.
2. Reversal of ITC claims, impacting cash flow and working capital.
3. Increased scrutiny during GST audits and potential legal complications.

To comply with GST rules, ISD invoices must include the following details (as per Rule 54 of CGST Rules):

1. Basic Information

• Name, address, and GSTIN of the ISD (distributing office).
• Consecutive serial number (up to 16 characters, unique for the financial year, e.g., ISD/2025-26/001).
• Date of issue.

2. Recipient Details

• Name, address, and GSTIN of the recipient unit (branch/factory receiving ITC).

3. Credit Distribution Details

• Amount of ITC distributed (separately for CGST, SGST/UTGST, or IGST).
• Clear indication that the invoice is issued only for ITC distribution (e.g., marked as "ISD Invoice").

4. Tax and Original Invoice Reference

• Original invoice number and GSTIN of the supplier (for traceability of the input service).
• Taxable value (must match the value in the original invoice).

5. Authentication

• Signature or digital signature of the ISD’s authorised representative.

6. Additional Compliance Notes

• ISD Credit Notes: Required if distributed ITC needs adjustment (e.g., due to credit reversals or errors). Must contain similar details as ISD invoices.
• GSTR-6 Reporting: All ISD invoices/credit notes must be reported in the ISD’s monthly return (GSTR-6).

Form GSTR-6 comprises of following tables:

Form GSTR-6 Invoice Details:

1. Table 3: To enter details of input tax credit received for distribution.
2. Table 6B: To enter details of debit or credit notes received.
3. Table 6A: To make amendments to information furnished in earlier returns in Table 3.
4. Table 6C: To make amendments to debit or credit notes received.

Form GSTR-6 ITC Distribution:

1. Table 4: To view details of ITC available and eligible and ineligible ITC distributed.
2. Table 5, 8: To enter details of distribution of input tax credit for ISD invoices and ISD Credit notes.
3. Table 9: To enter details of ITC available and eligible and ineligible ITC redistributed.

GSTR-6 - Other Details:
Table 10- Late Fee: To view Late Fee details for the return period.

Note: This tile can only be accessed after a return has been filed.

Until 1st April 2025, an ISD will not be able to accept any invoices on which tax is to be paid on reverse charge basis. It is to be noted that a recipient of service taxable under reverse charge mechanism is responsible to discharge the tax liability and then only take the credit of the same. So, earlier if it wants to take the credit of  reverse charge chargeable supplies, they were required to get registered as a normal taxpayer but cannot distribute the tax credit available thereof.

From 1st April 2025, ISD can take input services on which GST is paid on reverse charge and can distribute its credit to its GSTINs.

Pre-conditions for filing of Form GSTR-6 are:

• Recipient should be Registered as an ISD and should have an active GSTIN.
• Recipient should have valid login credentials (i.e., User ID and password).
• Recipient should have valid and non-expired/ unrevoked Digital Signature Certificate (DSC which is mandatory for companies, LLPs and FLLPs).
• Recipient should have with them an active mobile number which is indicated in their registration details furnished to GST Portal at the time of registration or amendment thereof for authentication through EVC.
• Recipient will have an option to file Form GSTR-6 for cancelled GSTINs for the period in which it was active.