Rules for Input Service Distributor (ISD)
Under GST Laws

What is an Input Service Distributor (ISD)?

An Input Service Distributor (ISD) is a registered office of a company that receives tax invoices for input services (like IT services, legal fees, rent, insurance) and distributes the Input Tax Credit (ITC) on those services to its other branches or units that have different GSTINs.

Typically, the Head Office (HO) or registered office of a company receives invoices for services used by multiple branch offices. Instead of each branch obtaining its own invoices, the HO acts as an ISD to distribute the proportionate ITC to each branch.

Who Needs ISD Registration?

ISD registration is appropriate for businesses that:

• Have multiple GSTINs (branches in different states or voluntary separate registrations)
• Receive common input service invoices at one location (typically Head Office)
• Want to formally distribute ITC on common services to branches
• Operate in industries like IT, banking, insurance, retail chains, or manufacturing with multiple plants

ISD Registration Process

The ISD is a separate GSTIN registration in addition to the regular registration of the head office:

1. File Form GST REG-01 on the GST portal
2. Select "Input Service Distributor" as the reason for registration
3. Provide details of all GSTINs (branches) to which ITC will be distributed
4. Upon approval, a separate ISD GSTIN is issued (different from the HO's regular GSTIN)
5. All common service invoices must henceforth be addressed to the ISD GSTIN

Which Credits Can Be Distributed via ISD?

ISD can only distribute ITC on input services — not on goods or capital goods:

• ✅ IT / Software services used by all branches
• ✅ Legal and professional services
• ✅ Rent and facility management
• ✅ Insurance premiums covering all locations
• ✅ Advertising and marketing services
• ✅ Consulting fees, audit fees, bank charges
• ❌ Goods (raw materials, office supplies) — cannot be distributed via ISD
• ❌ Capital goods (computers, machinery) — cannot be distributed via ISD
• ❌ Blocked credits under Section 17(5) — cannot be distributed even via ISD

Distribution Ratio Calculation

ITC is distributed in proportion to the turnover of each branch in the preceding financial year (or preceding quarter if new branches). The formula:

Types of distribution:

• For services attributable to a specific branch: 100% credit goes to that branch
• For services attributable to some (not all) branches: Credit distributed only among those branches
• For services attributable to all branches: Credit distributed to all GSTINs in proportion to turnover

ISD Invoice Format (Rule 54(1))

The ISD must issue an ISD Invoice (or ISD Credit Note) when distributing credit. Mandatory fields under Rule 54(1) of CGST Rules:

ISD Return: GSTR-6

The ISD must file GSTR-6 monthly (by the 13th of the following month) declaring:

• All ITC received at the ISD GSTIN (Table 3)
• ITC eligible and ineligible for distribution (Table 4 & 5)
• Distribution of ITC to branches — branch-wise breakup (Table 6)

Branches (recipients) will see distributed ITC appear in their GSTR-2A/2B, from where they can claim it in GSTR-3B.

ISD vs Cross-Charge: Key Differences

ISD: Changes from Finance Act 2024

The Finance Act 2024 brought significant changes to the ISD framework:

• Mandatory ISD: ISD mechanism made mandatory for distributing common input service ITC to branches (phasing out the option to use only cross-charge)
• Expanded scope: ISD can now also distribute ITC received under Reverse Charge Mechanism (RCM) — previously unclear
• GSTR-6 revamp: Form GSTR-6 revised to accommodate the expanded ISD framework
• IMS integration: ISD invoices now visible in the branch's Invoice Management System (IMS) for action before appearing in GSTR-2B