For multi-GSTIN businesses, the Input Service Distributor (ISD) mechanism is now a core GST control for common input services. From 1 April 2025, the substituted section 20 of the CGST Act requires an office that receives input-service invoices for or on behalf of distinct persons to obtain ISD registration and distribute the related input tax credit through the prescribed mechanism.
This matters for groups with a head office and branches registered under the same PAN in different States. Common invoices for audit, software, insurance, consulting or other shared services should not simply remain as credit in the GSTIN that happens to receive the invoice when the service is attributable to other distinct persons.
What is an Input Service Distributor?
The current statutory definition in section 2(61) covers an office of a supplier that receives tax invoices for input services, including specified reverse-charge services, for or on behalf of distinct persons under section 25 and is liable to distribute the credit under section 20. The current definition can be checked on the CBIC Tax Information Portal.
An ISD does not distribute credit on goods or capital goods. The mechanism is built around input services. That distinction should be part of the accounts-payable coding logic.
When does a business need the ISD route?
A useful practical test is to ask who actually uses the service represented by the invoice. If a head office receives an input-service invoice for or on behalf of one or more other GST registrations of the same legal entity, section 20 requires the office to be registered as an ISD and to distribute the relevant credit.
Typical examples include a group-wide ERP licence, statutory or internal audit covering several branches, a common insurance policy, central advertising, shared professional advice or a telecom contract used across locations. The precise attribution still depends on the facts: a service used exclusively by one recipient should be attributed to that recipient, while a genuinely common service may require proportionate distribution.
How distribution works in practice
Rule 39 provides the operating mechanics. Credit available for distribution in a month is to be distributed in that month and reported in FORM GSTR-6. Credit attributable to one recipient goes only to that recipient. Credit attributable to more than one recipient is distributed among those recipients on the prescribed turnover basis. Eligible and ineligible credit are distributed separately, and the different tax components are also handled separately.
CBIC's published Input Tax Credit Rules sets out the distribution framework. The GST Portal's GSTR-6 user guide explains the return workflow and states that GSTR-6 is due on the 13th of every month unless the due date is extended.
Same-State and different-State recipients
The tax character of distributed credit matters. Under the rule framework, IGST credit is distributed as IGST. For central and State or Union territory tax, distribution to a recipient in the same State or Union territory follows the prescribed same-jurisdiction treatment, while distribution to a recipient in another State or Union territory is made as IGST for the amount qualifying for that recipient.
This is one reason an ISD working should separately track invoice tax type, recipient GSTIN, recipient State and attribution basis instead of distributing a single pooled number.
Worked example
Assume a company has GST registrations in Maharashtra, Karnataka and Delhi. Its Mumbai head office receives a GST invoice for a cloud-software subscription used by all three registrations. The invoice is not exclusively attributable to Mumbai.
The finance team should first identify the eligible ITC and the recipient locations to which the service is attributable. The common credit is then allocated using the prescribed turnover basis for the relevant recipients. The ISD issues the prescribed distribution documents and reports the distribution in GSTR-6. The recipient GSTINs can then see ISD-related credit in their GST data flow; the GST Portal's GSTR-2B FAQ confirms that GSTR-2B includes ITC received through Form GSTR-6.
ISD versus cross charge
ISD and cross charge answer different questions. ISD distributes ITC on input services received for or on behalf of distinct persons. Cross charge concerns a supply made by one distinct person to another, such as internally supplied services where the GST law treats separately registered establishments as distinct persons.
A common mistake is to treat the two mechanisms as interchangeable simply because both can affect costs shared across branches. The correct treatment starts with the underlying fact: is the head office merely receiving a third-party input-service invoice for the branches, or is one GST registration itself making a supply to another distinct person?
Monthly ISD control checklist
- Identify common service invoices: flag vendor invoices received centrally but used by one or more other GSTINs.
- Separate goods from services: ISD is an input-service credit distribution mechanism.
- Map recipients: determine whether the service is exclusive to one GSTIN, attributable to a subset, or common to all relevant recipients.
- Check ITC eligibility: distribution does not convert blocked or otherwise ineligible credit into eligible credit.
- Apply the prescribed turnover basis: use the Rule 39 method where credit is attributable to multiple recipients.
- Track tax components: maintain CGST, SGST/UTGST and IGST separately and apply the correct same-State or different-State treatment.
- Issue ISD documents and file GSTR-6: complete distribution in the relevant month and reconcile the return to the ISD ledger.
- Reconcile recipient visibility: confirm that distributed credits flow into the recipients' GST records and investigate mismatches.
Common mistakes to avoid
- Leaving all common-service ITC in the head-office GSTIN merely because the vendor billed that office.
- Using ISD for goods or capital-goods credit.
- Distributing a service to every branch when the evidence shows it is attributable only to selected recipients.
- Ignoring ineligible-credit classification while allocating the invoice.
- Treating ISD and cross charge as substitutes without identifying whether the underlying transaction is a third-party input service or an inter-branch supply.
- Waiting until year-end to allocate common credits instead of building the process into the monthly GST close.
Practical takeaway
For businesses with multiple GST registrations under the same PAN, ISD should be designed as a monthly accounts-payable and GST-reconciliation process, not as a year-end adjustment. Identify third-party input services received for distinct persons, establish attribution, apply Rule 39, file GSTR-6 and reconcile the recipient credits. The statutory starting point is the current CGST Act text on CBIC's portal, supported by the official ITC rules and GST Portal GSTR-6 guidance.
