1. Mandatory ISD Registration
From April 1, 2025, businesses distributing Input Tax Credit (ITC) on common input services across multiple GST registrations (under the same PAN) must obtain ISD registration. This change is mandated by Notification No. 16/2024 – Central Tax dated August 6, 2024.
2. Who Must Register as an ISD?
Businesses that:
- Have multiple GST registrations under the same PAN, and
- Receive common input service invoices on behalf of more than one unit
Such businesses must register as ISD in the State or Union Territory where their centralized billing or corporate office is located.
3. Common Scenarios Requiring ISD Registration
- Software Subscriptions: e.g., ERP licenses used across branches
- Consultancy Services: centralized legal/advisory services billed to HQ
- Marketing & Advertising: national campaigns benefiting multiple states
- Statutory / Tax Audit / Other Managerial Services :
4. Key Compliance Requirements
- ITC must be disbursed within the same month and reported in Form GSTR-6
- Eligible and ineligible ITC to be distributed separately
- Tax types (CGST, SGST/UTGST, IGST) must be distributed individually
- ISD Invoices and credit notes must be issued for ITC distribution
- In RCM cases, the unit availing service must discharge tax and raise invoice to ISD
5. Turnover for Apportionment
The “relevant period” for determining the proportion of ITC to distribute:
- Is the preceding financial year (if turnover exists), or
- The latest available quarter (if no turnover in prior year)
6. Distribution of Credit
- Same State/UT:
- IGST → IGST
- CGST/SGST → CGST/SGST
- Different States/UTs:
- IGST → IGST
- CGST/SGST → IGST
If only one branch benefits: full credit to that branch.
If multiple branches benefit: ITC distributed in proportion to turnover.
7. Action Plan for Businesses
- Identify common services that qualify for ITC distribution
- Register as ISD before April 1, 2025
- Ensure vendor communication to raise invoices using ISD GSTIN
- Maintain accurate records and timely file GSTR-6 before 13th of each month.
Extract of section 2(61) of the CGST Act
(61) 17[“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;]
Extract of Section 20 of CGST Act
1[Section 20. Manner of distribution of credit by Input Service Distributor. –
(1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.
(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.
(3) The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be prescribed.]
Extract of Rule 39 of CGST Rules.
Rule 39. Procedure for distribution of input tax credit by Input Service Distributor.-
1[(1) An Input Service Distributor shall distribute input tax credit in the manner and subject to the following conditions, namely:–
(a) the input tax credit available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6 in accordance with the provisions of Chapter VIII of these rules;
(b) the amount of the credit distributed shall not exceed the amount of credit available for distribution;
(c ) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period,to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;
(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period;
(f) the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) to one of the recipients “R1”, whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipients who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, “C1”, to be calculated by applying the following formula-
C1= (t1/ T) x C
where,
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in clause (d) and (e),of person R1during the relevant period, and
“T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable in accordance with the provisions of clause (d) and (e);
(g) the Input Service Distributor shall, in accordance with the provisions of clause (d) and (e), separately distribute the amount of ineligible input tax credit (ineligible under the provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible input tax credit;
(h) the input tax credit on account of central tax, State tax, Union territory tax and integrated tax shall be distributed separately in accordance with the provisions of clause (d) and (e);
(i) the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient;
(j) the input tax credit on account of central tax and State tax or Union territory tax shall–
(i) in respect of a recipient located in the same State or Union territory in which the Input Service Distributor is located, be distributed as input tax credit of central tax and State tax or Union territory tax respectively;
(ii) in respect of a recipient located in a State or Union territory other than that of the Input Service Distributor, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient as referred to in clause (d) and (e);
(k) the Input Service Distributor shall issue an Input Service Distributor invoice, as provided in sub-rule (1) of rule 54, clearly indicating in such invoice that it is issued only for distribution of input tax credit;
(l) the Input Service Distributor shall issue an Input Service Distributor credit note, as provided in sub-rule (1) of rule 54, for reduction of credit in case the input tax credit already distributed gets reduced for any reason;
(m) any additional amount of input tax credit on account of issuance of a debit note to an Input Service Distributor by the supplier shall be distributed in the manner and subject to the conditions specified in clauses (a) to (j) and the amount attributable to any recipient shall be calculated in the manner provided in clause (f) and such credit shall be distributed in the month in which the debit note is included in the return in FORM GSTR-6;
(n) any input tax credit required to be reduced on account of issuance of a credit note to the Input Service Distributor by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed in terms of clause (f), and the amount so apportioned shall be-
(i) reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR-6; or
(ii) added to the output tax liability of the recipient where the amount so apportioned is in the negative by virtue of the amount of credit under distribution being less than the amount to be adjusted.]
2[(1A) For the distribution of credit in respect of input services, attributable to one or more distinct persons, subject to levy of tax under sub-section (3) or (4) of section 9, a registered person, having the same PAN and State code as an Input Service Distributor, may issue an invoice or, as the case may be, a credit or debit note as per the provisions of sub-rule(1A) of rule 54 to transfer the credit of such common input services to the Input Service Distributor, and such credit shall be distributed by the said Input Service Distributor in the manner as provided in sub-rule (1).]
(2) If the amount of input tax credit distributed by an Input Service Distributor is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the Input Service Distributor, the process specified in 1[clause (n)] of sub-rule (1) shall apply, mutatis mutandis, for reduction of credit.
(3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the Input Service Distributor credit note specified in 1[clause (j)] of sub-rule (1), issue an Input Service Distributor invoice to the recipient entitled to such credit and include the Input Service Distributor credit note and the Input Service Distributor invoice in the return in FORM GSTR-6 for the month in which such credit note and invoice was issued.
1[Explanation. — For the purpose of this rule, –
(i) the term “relevant period” shall be—
(a) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or
(b) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;
(ii) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;
(iii) the term “turnover”, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entries 84 and 92A of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.]
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