Input Service Distributor (ISD) under GST

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.

Latest Updates

Union Budget 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. *

Notification No. 16/2024-Central Tax dt 6th August, 2024

Before the said notification, the ISD mechanism was not mandatory. However, the government amended sec 2(61) and sec 20 of the CGST Act, 2017 via the above notification. It made the ISD provisions mandatory, effective from 1st April 2025.

Notification No. 12/2024-Central Tax dt 10th July, 2024

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.

Who is an Input service distributor (ISD) under GST?

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.

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.

Purpose of registering as ISD

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 centralized 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.

Insight on ISD under Earlier regime and GST regime

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.

Conditions to be fulfilled by ISD

• Registration: Input Service Distributor has to compulsorily register as “ISD” apart from its registration under GST as a normal taxpayer. Such taxpayer has to specify under serial number 14 of the REG-01 form as an ISD. They shall be able to distribute the credit to the recipients only after this declaration.
• Invoicing: ISD can distribute the amount of tax credit to recipients as earlier stated by issuing an ISD invoice.
• Returns: Amount of tax credit distributed should not exceed the amount of tax credit available with the ISD as at the end of a relevant month to be filed in GSTR-6 by the 13th* of succeeding month by ISD. The ISD can get the information of the ITC from the GSTR-2B return.
  The recipient of the tax credit can view the tax credit so distributed by ISD in GSTR-6A that is auto-populated from the supplier’s return. In turn, the recipient branch can claim the same by declaring it in GSTR-3B. An ISD need not file annual returns in form GSTR-9.

Distribution of Input Tax Credit

• The Input  Tax  Credit (ITC)  available  for  distribution  in  a  month  shall  be  distributed  in  the same  month and details of the same shall be given in the form GSTR-6
• The credit of tax paid under the reverse charge mechanism u/s 9(3) and 9(4) shall also be distributed to the recipients by ISD.
• The tax credit available against any specific input services used entirely by one of the recipients can be allocated only to that recipient for utilisation of such credit and not to other recipients.
• The tax credit available against the input services used commonly by more than one recipients of the ISD shall be allocated to all such recipients that are operational during the year on a proportionate basis in the following ratio:
  • Ratio: Turnover in a State/ Union territory of such recipient, during the relevant period/ Aggregate  of the turnover of all such recipients
• The tax credit available against the input services used commonly by all the recipients of the ISD shall be allocated to all the recipients that are operational during the year on a proportionate basis in the following ratio:
  • Ratio: Turnover in a State/ Union territory of such recipient, during the relevant period/ Aggregate  of the turnover of all such recipients
• The credit of CGST, IGST and SGST shall be distributed, in the prescribed manner as per below chart :

Recovery procedure for wrongful distribution of credit by ISD

GST Act provides that the following shall be deemed to be an inappropriate distribution of tax credit by Input Service Distributor:

• Credit distributed to all or any recipient in excess of the amount available for distribution
• Distributed in an inappropriate ratio to all or any recipient
• Distributed in excess to what a supplier is entitled to and shall be recovered from such recipient(s) along with interest and the provisions of ‘Demand and Recovery’ shall apply for effecting such recovery.

For a better understanding of the procedure prescribed for ISD, read our articles:

• How to distribute ITC as an ISD with illustrations?
• All about the GST return GSTR-6 to be filed by ISD
• Steps to file GSTR-6 on the GST portal
• Invoicing Rules under GST applicable for ISD