Input Service Distributor Registration applicable w.e.f. 1st April 2025

Introduction of ISD

A registered person operating across different states or union territories has offices that are regarded as distinct persons under Section 25 of the CGST Act, 2017. In this scenario, tax invoices for common input services may be received by one office, while the services are utilized by distinct persons located in other states or union territories. The ISD mechanism facilitates the distribution of ITC for common input services used across multiple offices under the same Permanent Account Number (PAN). The ISD mechanism ensures accurate allocation of credit across different units and locations. Under the ISD mechanism, ITC must be distributed via GSTR-6 on a monthly basis. The credit shall be distributed amongst such recipients on the basis of the turnover of all such recipients to whom such input service is attributable during the preceding financial year or the most recent quarter if no previous turnover is available.

Services received for or on behalf of multiple offices of the entity, referred to as common services in general parlance, are not defined under GST law.

In order to understand whether any service is common or not, one should check the services which are billed at one location and benefits to other or multiple offices of the entity under the same PAN.

Few of the example are: –

• Professional Services.
• Advertising services.
• Information Technology services & Software services.
• Director Services. Etc.

Distribution of credit by way of issue of a document- Section 20(3) read with Rules 39(1)(i) 39(1)(j) and 39(1)(k)

Section 20(3) reads as follows:

(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.

Section 20(3) of the CGST Act outlines the following procedure for distributing ITC by an ISD:

• The credit of CGST, IGST, and SGST shall be distributed, in the prescribed manner as per the below chart:

• The tax credit available against any specific input services used entirely by one of the recipients can be allocated only to that recipient for utilization of such credit and not to other recipients.
• The tax credit available against the input services used commonly by more than one recipient of the ISD shall be allocated to those recipients on a proportionate basis in the ratio of the turnover of all such recipients that are operational during the year.

Manner for proportionate distribution of ITC- Rule 39(1)(f)

The ITC to be distributed to a specific recipient, “R1”, whether registered or not, from amongst the total of all the recipients to whom ITC is attributable, including the recipients who are engaged in making exempt supply, or are otherwise not registered for any reason shall be done in accordance with following formula:

C1 = (t1 / T) x C

Where:

C1 Is the credit attributable to each recipient

C is the amount of credit to be distributed,

t1 is the turnover of the concerned recipient of service

T Is the aggregate turnover of all the recipients to whom the input service is attributable

This formula ensures that the ITC is distributed to R1 in proportion to their turnover relative to the total turnover of all recipients.

Manner of recovery of credit distributed in excess — Section 21

If an ISD distributes credit in contravention of Section 20, resulting in excess credit distribution to one or more recipients, the excess credit distributed shall be recovered from the recipient(s) along with interest. Further, in such cases, the provisions of Section 74A shall apply, mutatis mutandis, for determining the amount to be recovered. This ensures that excess credit distributed due to non-compliance with Section 20 is recovered from the recipient(s), along with applicable interest, maintaining the integrity of the GST Law.