Input Service Distributor (ISD) — GST Mechanism for Groups

An Input Service Distributor (ISD) is an office of the supplier that receives tax invoices for common input services and distributes the ITC (Input Tax Credit) to the branches/units that use those services. ISD is a GST mechanism used by large organisations with multiple GST registrations (multi-state businesses) to pass on shared input service credits efficiently. Here is the complete guide.

What Is an ISD?

• An ISD is typically the head office or registered office of a company that pays for services used by multiple branches/units (e.g., common legal fees, IT maintenance, audit fees, corporate subscriptions)
• The ISD receives the full invoice (with GST) and distributes the ITC to the recipient units/branches proportionally
• Without ISD: The head office cannot directly pass ITC to branches — each branch must receive its own invoice for input services

ISD Registration

• The ISD must have a separate GST registration — distinct from the regular GSTIN of the same office
• An office can have both: its own regular GSTIN (for its own outward supplies) AND an ISD GSTIN (for distributing common service credits)
• ISD registration is obtained by selecting "Input Service Distributor" in GST registration Form REG-01

ISD Distribution — Rules

• ITC must be distributed only to the units that received and used the input service
• Proportionate distribution: Based on the ratio of each unit's turnover to total turnover in the preceding financial year (Rule 39)
• ISD distributes by issuing an ISD Invoice to each unit — which the unit treats as an inward supply and avails ITC
• IGST ITC distributed as IGST; CGST+SGST distributed as IGST if the receiving unit is in a different state

GSTR-6 — ISD Return

• ISD files GSTR-6 monthly — declaring the ITC received and the ITC distributed to each unit
• Due date: 13th of the following month
• GSTR-6 is now mandatory from FY 2024-25 even for nil distribution periods

ISD vs Cross-Charge

• ISD: Distributes ITC passively — no tax to pay, no margin — just a distribution mechanism for common input services
• Cross-charge: Head office charges branches for services rendered (GST applies on the cross-charge value) — different from ISD distribution
• After GST Council 2024 clarification: ISD is the correct mechanism for common input services (not cross-charge) — both may co-exist for different types of services

Conclusion

ISD is an essential GST compliance mechanism for groups with common input services across multiple registrations — ensuring ITC flows to the correct recipient units. SPOTON provides ISD registration, GSTR-6 filing and multi-state GST compliance for business groups in Kerala. Contact us for expert GST advisory services.