Key points
- An ISD is an office that receives invoices for common input services and shares the credit with branches that have separate GSTINs.
- Since 1 April 2025, using an ISD is compulsory for such common services, including those taxed under reverse charge.
- Credit is shared in proportion to each branch’s turnover, using an ISD invoice.
- The ISD files GSTR-6 every month by the 13th.
- Credit wrongly distributed can be recovered with interest.
What is an Input Service Distributor?
Under GST, each state registration (GSTIN) of a business is treated as a separate person. When a head office in one state receives a service that is used by branches in several states, the GST on that invoice sits in the head office’s registration. Without a way to move it, branches can’t use credit that really belongs to them.
An Input Service Distributor (ISD) is an office of the business, registered separately as an ISD, that receives invoices for such common services and passes the credit on to the branches that use them. It is defined in Section 2(61) of the CGST Act, and the distribution rules are in Section 20 and Rule 39.
When is ISD compulsory?
From 1 April 2025, a business that receives input services on behalf of its distinct registrations, for use by one or more of them, must distribute the credit through an ISD. This now also covers services on which tax is paid under reverse charge. Before April 2025, using an ISD was optional and many businesses used cross-charging instead.
ISD applies only to input services. Credit on goods and capital goods can’t be distributed through an ISD.
How credit is distributed
- Service used by one branch only All the credit goes to that branch.
- Service used by some branches Credit is shared among those branches in proportion to their turnover.
- Service used by all branches Credit is shared among all of them in proportion to their turnover.
Turnover means the turnover of each branch in its state for the relevant period, usually the previous financial year. If a branch had no turnover in the previous year, the last quarter for which details are available is used.
Which tax does each branch receive?
| Branch location | Credit received as |
|---|---|
| Same state as the ISD | CGST and SGST |
| A different state | IGST |
An example
Your Patna head office pays ₹1,00,000 + ₹18,000 GST for an annual audit used by all three branches. Last year’s turnover was: Bihar ₹5 crore, Jharkhand ₹3 crore and West Bengal ₹2 crore.
| Branch | Share of turnover | Credit received |
|---|---|---|
| Bihar (same state) | 50% | ₹9,000 as CGST + SGST |
| Jharkhand | 30% | ₹5,400 as IGST |
| West Bengal | 20% | ₹3,600 as IGST |
Documents and returns
- ISD registration: a separate registration as an ISD, in addition to your normal GSTIN.
- ISD invoice: issued by the ISD to each branch for the credit distributed. An ISD credit note is used to reduce credit.
- Same month: credit must be distributed in the same month in which it is received.
- GSTR-6: the ISD files this return every month by the 13th, showing credit received and distributed.
- Branch returns: each branch sees the credit in its GSTR-2B and claims it in GSTR-3B.
Setting up an ISD: step by step
- Pick the office Usually the head office that receives the common service invoices.
- Apply for ISD registration A separate registration as an Input Service Distributor, in addition to the normal GSTIN of that office.
- Ask suppliers to bill the ISD Common service invoices should carry the ISD’s GSTIN, not the head office’s normal GSTIN.
- Work out the turnover ratio Use each branch’s turnover for the relevant period.
- Issue ISD invoices every month Distribute the credit in the month it is received, and file GSTR-6 by the 13th.
ISD or cross-charging?
Before April 2025, many businesses used cross-charging instead: the head office raised a tax invoice on each branch for its share of common costs. Cross-charging is still used for things the head office itself supplies to branches, such as management services. But for third-party services received on behalf of branches, the ISD route is now the required way to pass on the credit.
Common mistakes
| Mistake | What happens |
|---|---|
| Distributing credit on goods | Not allowed through an ISD; credit can be disallowed. |
| Using a wrong turnover ratio | Excess credit at a branch can be recovered with interest. |
| Distributing in a later month | Credit should be distributed in the month it is received. |
| Ignoring reverse charge services | Since April 2025 these must also go through the ISD. |
| Not distributing at all | Branches miss out on credit and the business may face penalties. |
Milaan ERP supports ISD invoices and keeps each GSTIN’s credit separate. See multi-GSTIN support for how branches in several states are handled.
This guide explains GST rules in simple words and reflects the law as we understand it on 28 October 2026. Rules, rates and dates change, so please confirm with your CA or the official notifications before acting on it.