Mandatory ISD Registration from April 1, 2025, businesses with multiple GST registrations must obtain Input Service Distributor (ISD) registration to distribute Input Tax Credit (ITC) across GSTINs
Summary: Starting April 1, 2025, businesses with multiple GST registrations under the same PAN must obtain Input Service Distributor (ISD) registration to distribute Input Tax Credit (ITC) across their GSTINs. ISD is a mechanism under GST for distributing ITC on services received centrally to various branches or units registered with different GSTINs. For instance, if the head office of XYZ Ltd. in Mumbai incurs software maintenance expenses for its branches in Chennai, Kolkata, and Mumbai, the ITC must be distributed among these locations through ISD registration. However, ISD cannot be used to distribute ITC on raw materials, machinery, or capital goods, nor to outsourced manufacturers or service providers. Businesses opting for ISD registration must fulfill specific conditions: register as ISD under GST using the REG-01 form, distribute ITC by issuing ISD invoices to branches, and file monthly GSTR-6 returns by the 13th to report distributed credits. ITC should be distributed in the same month of receipt, using the turnover ratio of the branches for common services. This ensures an equitable and efficient sharing of tax credits among all locations, simplifying compliance for businesses with centralized billing systems. All businesses with more than one GST registration are required to comply with this mandatory registration to ensure seamless ITC flow under GST regulations.
What is ISD?
An Input Service Distributor (ISD) is a taxpayer under GST who distributes the Input Tax Credit (ITC) on services to its branches or units registered under the same PAN but with different GSTINs.
Example: Who can be an ISD?
The head office of XYZ Limited is located in Mumbai 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 Mumbai. The same has to be distributed to all three locations. Here, the head office in Mumbai is the Input Service Distributor.
When is ISD not applicable?
ISD cannot distribute ITC on raw materials, machinery, or capital goods.
ITC cannot be distributed to outsourced manufacturers or service providers.
Why register as an ISD?
ISD registration simplifies the credit process for businesses with centralized billing, helping in the seamless flow of credit under GST.
Conditions for ISD:
Registration: Register as ISD under GST and mention it in the REG-01 form.
Invoicing: Distribute ITC by issuing ISD invoices to branches.
Returns: File GSTR-6 by the 13th of each month to report the distributed credits. Branches can claim the credit through GSTR-3B.
How is ITC Distributed?
ITC should be distributed in the same month it is received.
For common services, ITC is distributed based on the turnover ratio:
Formula: Turnover of the recipient in the state/Total turnover of all recipients.
This system ensures that businesses with multiple locations can efficiently share the benefits of the input tax credit.
Compliance Alert: Mandatory ISD Registration from April 1, 2025, businesses with multiple GST registrations must obtain Input Service Distributor (ISD) registration to distribute Input Tax Credit (ITC) across GSTINs
Who is affected?
All businesses with more than one GST registration.
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