ISD or an Input Service Distributor is a type of taxpayer under GST who needs to distribute the GST input tax credits that pertain to its GSTIN to its units or branches having different GSTIN but registered under the same PAN. 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.
Latest Updates
1st February 2025
The Union Budget amended sections 2 and 20 of the CGST Act to add explicitly about the reverse charge mechanism provisions of sections 5(3) and 5(4) of the IGST Act.*
6th August 2024
Before the notification no. 16/2024-Central Tax, the ISD mechanism was not mandatory. However, the government amended sec 2(61) and sec 20 of the CGST Act, 2017 and made the ISD provisions mandatory, effective from 1st April 2025.
10th July 2024
Via notification no. 12/2024-Central Tax, CBIC amended rule 39 of the CGST Rules, 2017, and prescribed the method for allocating ITC by an ISD, but the same has yet to be notified.
*The decision will apply once the relevant notification is issued.
An Input Service Distributor (ISD) is a taxpayer that receives invoices for services used by its branches. It distributes the tax paid known as the Input Tax Credit (ITC), to such branches on a proportional basis by issuing ISD invoices. The branches can have different GSTINs but must have the same PAN as that of ISD.
Let’s understand with an example:
The head office of M/s ABC Limited is located in Bangalore having branches in Chennai, Mumbai and Kolkata. The head office incurred annual software maintenance expense (service received) on behalf of all its branches and received the invoice for the same.
Since the software is used by all its branches, the input tax credit of entire services cannot be claimed in Bangalore. The same has to be distributed to all three locations. Here, the head office at Bangalore is the Input Service Distributor.
An entity must register as an input service distributor (ISD) only if it is applicable. ISD registration under GST would be applicable to an entity if the below are satisfied-
ISD cannot distribute the input tax credit in the following cases:
Rules pertaining manner of distributing ITC as an Input service distributor is invoked by Section 20 of the CGST Act, outlined below.
The term ‘Input service distributor’ is defined under Section 2(61) of the CGST Act. It is defined as an office of the supplier of goods or services or both receiving tax invoices for input services. Such invoices include those for services liable to tax under Section 9(3) or 9(4) of the CGST Act subject to reverse charge. These services are received for or on behalf of distinct persons referred to in Section 25 of the CGST Act. They must distribute the input tax credit in respect of such invoices in the manner provided in Section 20 of the CGST Act.
CGST Rule 39 provides the compliance rules for ITC distribution as an ISD for various scenarios.
Whereas, the CGST Rule 54(1) provides rules pertaining to raising of ISD invoice.
The concept of ISD is a facility made available to business having a large share of common expenditure and billing or payment is done from a centralised location. The mechanism is meant to simplify the credit taking process for entities and the facility will strengthen the seamless flow of credit under GST.
Having documents required for ISD registration under GST handy helps entities to obtain ISD GSTIN quickly. This can be passed onto the vendors so that they raise tax invoices accurately. Below is the list of documents needed to apply for GST ISD registration-
Business entities transitioning into the ISD compliance process from 1st April 2025 may be wondering how to get ISD registration under GST. Registration application for ISD is the same as any normal/regular taxpayer, i.e., REG-01. ISD cannot take multiple registrations in a State. A composition taxable person cannot register as ISD under GST.
Process involves submission of the GST registration application and aadhaar authentication. Below is a simple summarised steps to get registration of ISD under GST-
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.
For further details, read our article on step-by-step process of GST registration.
Point of Difference | Earlier Regime | GST Regime |
1. Who can be an Input service distributor? | An office of the manufacturer or producer of final products or provider of output service | An office of the supplier of goods and/or services |
2. Document based on which credit can be distributed | Receives invoices issued under rule 4A of Service Tax Rules, 1994 towards the purchase of input services | Receives tax invoices issued by supplier towards receipt of input services |
3. How to distribute credit? | By issuing invoice, bill or challan for the purposes of distributing to such manufacturer or producer or provider. | By issuing an ISD invoice for the purposes of distributing to a supplier of taxable goods and/or services having the same PAN as that of the office referred to above |
4. Type of tax credit that can be distributed | The credit of service tax paid on the said services | The credit of CGST (or SGST) and/or IGST paid on the said services |
5. To whom can it be distributed? | To its units and outsourced manufacturers | To supplier having the same PAN. i.e credit cannot be distributed to outsourced manufacturers or service providers. |
Thus, on looking into the highlighted differences between the two regimes, distribution of credit is restricted to the office having the same PAN. The reason could be due to the shift of taxable event from manufacture to supply. The tax liability would arise at the time of supply which would be ultimately paid by ISD on the utilisation of available input tax credit.
The format of ISD invoice that is issued by an ISD to its units has been laid down by the GST law. Contents are defined by Section 54(1) of the CGST Act as follows-
GST Act provides that the following shall be deemed to be an inappropriate distribution of tax credit by Input Service Distributor:
Failure to obtain ISD registration can have severse adverse consequences, as explained below-
For a better understanding of the procedure prescribed for ISD, read our articles: