Summary: Effective April 1, 2025, businesses with multiple GST registrations under a single PAN must obtain a separate Input Service Distributor (ISD) registration to distribute the Input Tax Credit (ITC) for common services. This change is mandated by Notification No. 16/2024–Central Tax, making ISD registration mandatory for the distribution of common expenses such as software subscriptions, legal and advisory fees, marketing, and audit services. Previously, this process was not a mandatory requirement, as clarified by the Central Board of Indirect Taxes and Customs (CBIC). However, the new rule means that a single GST registration, like a head office, can no longer claim the entire ITC for common services on behalf of all branches. Instead, the credit must be distributed to all relevant branches via the ISD mechanism. Failure to comply with this new provision could result in the loss of credit and may lead to interest and penalties. The process for distributing credit through an ISD is governed by Section 20 of the CGST Act and Rule 39 and Rule 54 of the CGST Rules, which require separate distribution of both eligible and ineligible ITC.
PAY ATTENTION – Business entities having multiple GST registrations under a single PAN and incurring common expenses for services like software subscriptions, legal and advisory services, marketing, promotion and advertising, auditors’ expenses, ROC compliance expenses, etc for all the branches-
W.e.f. 01.04.2025[1], ISD registration is mandatory to distribute ITC of common input services.
The ISD provisions although borrowed in GST Law from the erstwhile regime itself, due a drafting lacuna were not mandatory earlier, also clarified by CBIC[2].
However, now w.e.f. 01.04.2025-
1.The recipients of common input services (having normal GST registration) shall not be able to avail ITC only at a particular registration (head office/branch) and the same is required to be distributed through ISD to all branches.
2. Thus, apart from the normal GST registration, separate ISD Registration is to be obtained for receiving common input services and distribution of credit availed on the same.
3. Both eligible and ineligible ITC shall be distributed separately by the ISD.
4. Non-compliance may result into loss of credit along with interest and penalty.
5. Relevant provisions for manner of distribution through ISD are prescribed under Section 20 of the CGST Act read with Rule 39 & Rule 54 of the CGST Rules.
[1] Notification No. 16/2024–Central Tax dated 06.08.2024 w.e.f. 01.04.2025
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