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. 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.

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.

Eligibility Criteria for ISD Registration under GST

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-

• Must be an office suppying goods or services or both.
• Receiving tax invoices towards input services bought for or on behalf of its units/branches having different GSTINs but falling under the same PAN. 
• Must be located at the place where the common input services are received.
• Can distribute ITC on input services as an ISD, including those on which GST is paid under reverse charge mechanism.
• Can apply for multiple ISD registrations if common services are received at different offices located in different states or districts.
• Must begin issuing a prescribed ISD invoice document for distributing the input tax credit of CGST (or SGST in State Acts) and/or IGST paid on the said services to its unit/branch under same PAN but with a different GSTIN.

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.

Legal Framework and Governing Provisions

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.

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 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.

Documents Required for ISD Registration

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-

• Copy of existing GST Registration Certificate (for regular GST registration)
• PAN card
• Proof of business constitution- Such as the Memorandum of Association, Articles of Association, and Certificate of Incorporation if entity is a company. This varies with a partnership firm, LLP and sole proprietorship.
• Proof of address of ISD office- Such as the utility bill if the property is rented or sale deed or ownership document if the property is owned.
• Authorised signatory details- Such as the identity proof, photograph, and authorisation letter.
• Bank account details- Such as the bank statement or cancelled cheque.
• Details of business carried out
• If GST officer calls for it, then provide the list of invoices, value received, input service agreements, along with summary of ITC distributed.
• Financial statements and self-declaration affidavit confirming GST compliance if the GST officer calls for it.

Step-by-step Registration Process for ISD

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.

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.

Format of ISD Invoice

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-

• Name of the ISD and address
• GSTIN of ISD
• Unique invoice number
• Date of invoice
• Name and address of the unit/recipient branch
• GSTIN of the recipient branch/unit
• Amount of ITC distributed
• Signature of the authorised person

Conditions for 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.

Consequences of Non-Compliance with ISD Rules

Failure to obtain ISD registration can have severse 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.

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