Mandatory ISD Registration - Effective April 1, 2025

tax comply
Mar 11
4 min read

Introduction

Effective April 1, 2025, the Government of India mandates that businesses with multiple GST registrations under the same Permanent Account Number (PAN) must register as a n Input Service Distributor (ISD) to distribute Input Tax Credit (ITC) on common input services across their various branches or units.

This change aims to streamline ITC allocation, eliminate disparities, and standardize tax credit distribution by replacing the cross-charge mechanism for common service costs.

What is an ISD?

As per Section 2(6) of the CGST Act,20I7 :

“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20”

In simple words, An ISD refers to a designated office (usually head office) within a business that receives invoices for input services and subsequently allocates the eligible ITC to various GST-registered branches or units under the same PAN but with different GSTINs.

This mechanism ensures that ITC from shared services, such as audit fees, legal consultations, and software subscriptions, is correctly allocated to the branches that utilize these services.

Key Features of ISD

Applies only to input services (not goods or capital goods).
Requires separate GST registration for the ISD entity.
ITC allocation is based on proportional turnover of recipient branches.
ISDs must issue ISD invoices and file monthly returns via GSTR-6.

ITC Distribution Methodology

The ITC distribution follows a turnover-based allocation formula:

ITC Branch/unit = (Turnover Branch or unit / Total Turnover ) × Common ITC

Term	Means
Turnover of Branch/Unit	Turnover of the branch or unit during the relevant period to whom ITC is to be distributed
Total Turnover	Aggregate turnover of all branches or units during the relevant period to whom ITC is to be distributed
Common ITC	Amount of Input Tax Credit (ITC) to be distributed

The term "relevant period" means

Scenario	Relevant Period
If all recipients of credit had turnover in the previous financial year	The previous financial year
If some or all recipients of credit did not have turnover in the previous financial year	The last available quarter for which turnover details exist before the credit distribution month

This means that the relevant period is generally the previous financial year. However, if any recipient had no turnover in that year, the last available quarter with turnover data is considered.

Scenarios for ITC Allocation

Rule	Explanation
Attributable Credit	If credit is linked to a specific recipient, it must be given only to that recipient.
Shared Credit (Specific Recipients)	If credit applies to multiple specific recipients, it must be distributed proportionally based on their turnover in the relevant period.
Shared Credit (All Recipients)	If credit applies to all recipients, it must be distributed proportionally based on their turnover in the relevant period.

When a Reverse Charge Mechanism (RCM) service, such as legal services, is used by multiple GST registrations:

The Head Office (HO) first pays the tax under RCM like a regular transaction since ISD cannot discharge RCM liability.
After payment, the HO claims the ITC and transfers it to the ISD.
The ISD then distributes the credit to the relevant GST registrations proportionally.

Tax Classification for ITC Distribution

Tax Type	Recipient in Same State	Recipient in Another State
IGST	IGST	IGST
CGST/SGST	CGST + SGST	IGST

Compliance & Filing Obligations

Form	Purpose
GSTR-6A	Auto-generated ITC statement for ISD.
GSTR-6	Monthly ITC distribution return (due by the 13th of each month).

ISD invoices must be issued before ITC distribution.
ITC must be distributed in the same month it is received.
Late filing of GSTR-6 attracts a penalty of ₹100 per day (₹50 CGST + ₹50 SGST).

What Business should do before 31 March 2025

Ø Identify Common Input Services - Evaluate centralized procurement of services used across branches.

Ø Obtain ISD Registration - Apply for an ISD GSTIN, preferably at the Head Office location

Ø Vendor Communication - Instruct suppliers to issue invoices under the ISD GSTIN.

Ø Segregate ITC Transactions - Distinguish between ITC to be distributed via ISD and branch-specific ITC.

Ø Establish Internal Controls - Implement ITC tracking and distribution mechanisms.

Ø Team Training & Compliance - Educate finance teams about ISD provisions and GSTR-6 filing.

Ø Set Up a Review Process - Ensure accurate ITC distribution and timely return submission.

How We Can Assist You?

Ø Support in ISD registration

Ø Identifying the common inputs and allocation based on the turnover

Ø Filing of GSTR - 6

Ø Vendor and Invoice management

🚨 Act now to ensure seamless compliance and avoid disallowance of ITC under the new ISD framework!

If you have any questions, our team is here to help. Feel free to contact us at the number provided below.