Input Service Distributor (ISD) is an essential mechanism under the Goods and Services Tax (GST) framework, especially for organizations with operations in multiple states. This article provides a comprehensive overview of ISD, including its definition, eligibility, registration process, return filing, and compliance obligations—designed for both tax professionals and business owners.
📌 What is ISD in GST?
ISD Full Form: Input Service Distributor
An Input Service Distributor (ISD) is an office (head office or any designated branch) that receives tax invoices for input services and distributes the Input Tax Credit (ITC) to its various units or branches registered under the same PAN.
🧠 Key Function: Distribute eligible input tax credit on common services (like HR, advertising, legal) to different GSTINs of the same entity, located in different states.
📌 Why ISD Registration Matters More Than Ever
In FY 2024-25, GST compliance norms are tightening. Authorities are urging businesses with centralized functions (like HR, marketing, legal, IT) to register as ISDs if they intend to distribute the input credits of services consumed across branches in other states.
Key Focus: Efficient credit utilization, avoidance of dual taxation, and audit trail compliance.
🧠 Who Should Register as an ISD?
✅ Applicable Scenarios:
| You Must Register as ISD If You… | Example |
|---|---|
| Have head office (HO) receiving common input services (e.g., audit, HR, legal) | HO in Delhi paying for legal services used by Delhi, Mumbai, and Bengaluru offices |
| Intend to distribute ITC of input services to other GSTINs under the same PAN | Software license used by multiple branches |
| Operate in multiple states or UTs with separate GST registrations | Manufacturing unit in Gujarat, branch offices in TN, Maharashtra |
❌ Not Required If:
- You’re not distributing input tax credit to other branches
- You don’t receive centralized input service invoices
✅ Eligibility Criteria for ISD Registration
| Criteria | Details |
|---|---|
| Business Structure | Entity with multiple GST registrations (GSTINs) under one PAN |
| Type of Input | Common input services used by multiple units |
| Separate Registration Required | Yes, ISD must be separately registered under GST |
| Location | Can be any one office receiving input service invoices |
📝 ISD vs Normal GST Registration
| Parameter | ISD Registration | Regular GST Registration |
|---|---|---|
| Purpose | Distribute input service credit | Supply of goods/services |
| Credit Distribution | Allowed | Not allowed |
| Filing Returns | GSTR-6 | GSTR-1, GSTR-3B, etc. |
| Registration Basis | Centralised for inputs | Per state-wise business unit |
📝 Documents & Registration Process for ISD
📄 Required Documents:
- PAN of the company
- Proof of principal place of business
- Authorization letter / board resolution
- Identity/address proof of authorized signatory
- Bank account details
🏢 ISD Registration Process – Step by Step
Follow these steps to register as an Input Service Distributor under GST:
1. Visit GST Portal
Go to www.gst.gov.in and login using your credentials.
2. Navigate to Services > Registration > New Registration
Choose the “Input Service Distributor” option under the “Reason for Registration”.
3. Fill the Application Form (GST REG-01)
Provide details such as PAN, business details, address, authorized signatory, and nature of business.
4. Upload Documents
- PAN card
- Address proof
- Authorization letter
- Photograph of signatories
5. Verification & ARN Generation
Submit the application with digital signature or EVC. An ARN is generated for tracking.
6. Issue of GSTIN for ISD
If verified successfully, GSTN issues a unique ISD registration number.
🔄 Functionality of ISD Under GST
Once registered, the ISD can perform the following functions:
- Receive tax invoices for input services
- Distribute eligible ITC to respective units on a pro-rata basis or as per usage.
📌 Distribution is made using Invoice or Debit Note, not through supply of goods or services.
🧾 Example:
- Head Office (Delhi) pays ₹1,00,000 for legal consultation (₹18,000 GST)
- Services used by 3 branches: Mumbai (50%), Kolkata (30%), Hyderabad (20%)
💸 Credit Distribution via ISD Invoice:
| Branch | Credit Share (%) | IGST Credit Distributed |
|---|---|---|
| Mumbai | 50% | ₹9,000 |
| Kolkata | 30% | ₹5,400 |
| Hyderabad | 20% | ₹3,600 |
The Delhi HO will raise ISD invoices to transfer the proportionate ITC.
📥 Types of Credit Distributed by ISD
| Type of GST | Distributable to |
|---|---|
| CGST | IGST to inter-state unit |
| SGST/UTGST | IGST to inter-state unit |
| IGST | Same IGST to intra/inter-state unit |
🧾 ISD Invoices: Format & Rules
- Must contain words “ISD Invoice”
- Must include:
- GSTIN of ISD & recipient branch
- Amount of ITC distributed
- HSN code of input service
- Document serial number & date
⚠️ Separate ISD invoice required for each recipient branch
🔍 ISD vs Cross-Charging: What’s the Difference?
| Factor | ISD | Cross-Charge |
|---|---|---|
| Nature | Distribution of ITC | Supply of service between units |
| Document Used | ISD Invoice | Tax Invoice |
| Tax Payable? | No | Yes |
| Input Types | Input services only | Goods, services, assets |
✅ Use ISD for distributing common input services
✅ Use cross-charge when one unit supplies services to another (e.g., back-office support)
🧠 Best Practices for Using ISD Mechanism
- ✔️ Always maintain accurate invoice trail for input services
- ✔️ Distribute credit only for eligible input services
- ✔️ File GSTR-6 monthly for ISD transactions
- ✔️ Avoid using ISD for goods, capital items, or non-common services
- ✔️ Use accounting systems that track ISD credits and recipients automatically
⚠️ Non-Compliance Risks Without ISD
| Risk | Consequence |
|---|---|
| Wrong ITC distribution | Demand, interest & penalty |
| No ISD registration but credit distributed | Treated as ineligible ITC |
| Centralized services recorded as local input | Misreporting under GSTR-3B |
📈 Why Businesses Should Act Now
With stricter audit protocols and AI-led reconciliation, businesses must reassess their input credit structure. Not registering as an ISD when required can lead to credit reversals, compliance notices, or even tax demand under Section 73.
📑 Return Filing for ISD – GSTR-6
ISD has to file GSTR-6 monthly to report credit received and distributed.
| Return Type | Form Name | Filing Frequency | Due Date |
|---|---|---|---|
| ISD Return | GSTR-6 | Monthly | 13th of next month |
GSTR-6 Includes:
- Details of input invoices received
- Credit distributed to various GSTINs
- Mismatches and corrections if any
⚠️ Late filing penalty: ₹50/day (₹20/day for nil return) up to a max of ₹5,000.
🔍 Important Rules for ISD Credit Distribution
- Credit can be distributed only for input services, not goods.
- Distribution to be done based on turnover ratio or actual usage.
- Maintain proper invoice trail for audit purposes.
- Cross-utilization of credit is not allowed (e.g., CGST to SGST).
🧾 Common Use-Cases of ISD
- Head office receives marketing invoice → Distributes ITC to branches
- Centralized HR services → Input credit distributed via ISD
- Shared legal consulting bills → Allocated through ISD mechanism
🎯 Benefits of ISD Mechanism
| ✅ Pros | ❌ Cons |
|---|---|
| Centralized credit distribution | Needs separate registration |
| Avoids accumulation of ITC at head office | Complex compliance (GSTR-6 monthly filing) |
| Better control over multi-state units | No credit for goods |
🧠 Tips to Comply with ISD Norms
- Use ERP or accounting software with ISD module (like Tally or Zoho Books)
- Reconcile distributed credit with GSTR-2A of recipient units
- Maintain detailed ITC registers and invoices
- Set internal SOPs for common input invoices
🔗 Internal Links (Taxcrux.com)
🌐 External References
✅ Conclusion
The ISD mechanism is no longer optional for large and multi-state organizations. If your company incurs centralized expenses and distributes service benefits to multiple branches, ISD registration is your compliance passport.
It ensures you remain aligned with GST law while maximizing ITC flow efficiently.
Take action today — register your Head Office as ISD and streamline GST credit flow legally and efficiently.
❓ Frequently Asked Questions (FAQs)
1. Can I distribute ITC for input goods through ISD?
No, only input services are allowed for ITC distribution via ISD.
2. Is separate registration mandatory for ISD?
Yes, you must register the ISD separately, even if already GST registered for regular business.
3. Do I need to file returns monthly for ISD?
Yes, ISD must file GSTR-6 on a monthly basis.
4. Can I use the same GSTIN for regular business and ISD?
No, ISD registration must have a distinct GSTIN.
5. What happens if I don’t distribute the credit?
The ITC will remain unutilized and may lapse after expiry or scrutiny.
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