Summary: Effective April 1, 2025, the Indian government has made Input Service Distributor (ISD) registration mandatory under the GST framework. This move aims to ensure the equitable distribution of Input Tax Credit (ITC) among states by requiring businesses with multiple GST registrations under a single PAN to register as ISDs. The mechanism facilitates the allocation of ITC related to common services acquired at a central location to different branches or units. Under the ISD mechanism, ITC must be distributed via GSTR-6 on a monthly basis. The distribution cannot exceed the available credit and must be allocated specifically to the intended recipients. If ITC applies to multiple recipients, it must be apportioned based on their turnover from the preceding financial year or the most recent quarter if no previous turnover is available. As per Section 20(3) of the CGST Act, 2017, ITC on Central Tax (CGST) will be distributed as CGST or Integrated Tax (IGST), while ITC on IGST can be allocated as either IGST or CGST. Rule 39 of the CGST Rules, 2017, has also been amended to align with these changes, as per Notification No. 12/2024-Central Tax dated July 10, 2024. ISD entities must file monthly returns in Form GSTR-6 by the 13th of each month, with invoices issued to ISD auto-populating in Form GSTR-6A. The mandatory ISD registration is expected to streamline ITC distribution and prevent revenue leakage across states.
Q.1 Who Is Required to Obtain ISD Registration?
Ans. All taxpayers having multiple GST – Registrations under single PAN
Q.2 Which ITC Has to Be Distributed Under ISD Mechanism?
Ans. a. ITC for each month is distributed via GSTR6.
b. Distribution cannot exceed the available credit.
c. Specific ITC of a recipient to be distributed to that recipient.
d. ITC attributable to multiple recipients to be distributed on pro-rata basis.
e. Common ITC to be distributed to all recipients.
Q.3 What Is Mode of Distribution Under ISD Mechanism?
Ans. a. ITC for each month is distributed via GSTR6.
b. Distribution cannot exceed the available credit.
c. Specific ITC of a recipient to be distributed to that recipient.
d. ITC attributable to multiple recipients to be distributed on pro-rata basis.
e. Common ITC to be distributed to all recipients.
Q.4 Basis For Pro-Rata Distribution of ITC –
Ans. Distribution to be made on turnover of recipients for preceding year. If some or all recipients of the credit do not have any turnover in the preceding financial year, turnover of the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed.
Also, As per Section 20(3) of CGST Act’2017, the manner of distribution shall be prescribed in the rules. However, it has been stated in sub-section (3) of Section 20 if CGST Act’2017 that credit of Central Tax shall be distributed as Central Tax or Integrated Tax and that of Integrated Tax shall be Integrated Tax or Central Tax. In this respect Rule 39 of the CGST Rules, 2017 has also been amended vide Notification No. 12/2024-Central Tax dated 10.07.2024.
5. Submission of ISD Return –
a. ISD must file a return in FORM GSTR-6 due by 13th of every month.
b. Invoices issued to ISD shall auto-populate in FORM GSTR-6A
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