Input Service Distributor Under GST: How to Distribute Common-Service ITC Across Multiple GSTINs

A company with GST registrations in several States usually buys some services centrally: an ERP licence, statutory audit, group insurance, a national advertising campaign, legal advice. The vendor bills one office, but the service is used by several registrations of the same legal entity. From 1 April 2025 the law settles how that credit moves. Section 20 of the CGST Act, as substituted with effect from 1 April 2025, requires the office receiving such invoices to register as an Input Service Distributor (ISD) and distribute the credit, and rule 39 of the CGST Rules, amended by Notification No. 12/2024-Central Tax dated 10 July 2024 with effect from the same date, prescribes the method.

This guide brings together the rules, the GSTR-6 return, the turnover formula and three worked allocations, so a finance team can run ISD as a routine monthly process rather than a year-end clean-up.

Who must register as an ISD

Section 20(1) covers any office of a supplier of goods or services or both that receives tax invoices towards the receipt of input services, including invoices for services taxed under reverse charge under section 9(3) or 9(4), for or on behalf of distinct persons referred to in section 25. Such an office is required to be registered as an Input Service Distributor. Registrations of the same PAN in different States are distinct persons, so a head office in Mumbai buying services for branches in Bengaluru and Delhi falls within the provision.

Three points follow directly from the wording:

• Input services only. The mechanism covers invoices for input services. Credit on goods and capital goods cannot be routed through an ISD.
• Reverse charge services are included. Invoices for services on which the recipient pays tax under section 9(3) or 9(4) are expressly covered, so tax paid under reverse charge on a common service also goes through the ISD.
• It is a separate registration. The section requires the office to be registered as an ISD; that registration sits alongside the normal GSTIN of the same office.

The BDO alert on the effective date of the Finance Act, 2024 amendments records that Notification No. 16/2024-Central Tax dated 6 August 2024 brought the amended sections 2(61) and 20 into force from 1 April 2025, making ISD mandatory where earlier it was optional.

What rule 39 requires, clause by clause

Rule 39(1) sets the conditions for every distribution:

1. Credit available for distribution in a month is distributed in the same month (clause (a)).
2. The amount distributed cannot exceed the credit available for distribution (clause (b)).
3. Credit on input services attributable to one recipient goes only to that recipient (clause (c)).
4. Credit attributable to more than one recipient is shared among those recipients only, in proportion to each one's turnover in its State or Union territory during the relevant period (clause (d)).
5. Credit attributable to all recipients is shared among all of them on the same turnover ratio (clause (e)).
6. The share of recipient R1 is C1 = (t1 / T) x C, where C is the credit to be distributed, t1 is R1's turnover and T is the aggregate turnover of the recipients concerned (clause (f)).
7. Ineligible credit (including credit blocked under section 17(5)) and eligible credit are distributed separately (clause (g)).
8. Central tax, State tax, Union territory tax and integrated tax credits are distributed separately (clause (h)).
9. Integrated tax credit is distributed as integrated tax to every recipient (clause (i)).
10. Central tax and State or Union territory tax credit is distributed as central and State tax to a recipient in the same State or Union territory as the ISD, and as integrated tax to a recipient in a different State or Union territory (clause (j)). Section 20(3) of the Act mirrors this.

Rule 39(1A), inserted by the 2024 amendment, lets a registered person with the same PAN and State code as the ISD issue an invoice or credit note to transfer credit on common input services to the ISD, so that the ISD can distribute it under rule 39(1). This covers the case where a common service was billed to the normal GSTIN of the head office rather than to the ISD.

The definitions that decide the ratio

The Explanation to rule 39 defines three terms that drive every calculation:

• Recipient of credit means the supplier of goods or services or both having the same PAN as the ISD.
• Relevant period is the preceding financial year if the recipients had turnover in that year. If they did not, it is the last quarter for which turnover details of all the recipients are available, before the month in which credit is distributed.
• Turnover excludes duties and taxes levied under entries 84 and 92A of List I and entries 51 and 54 of List II of the Seventh Schedule, so excise on specified goods and State taxes on items outside GST are stripped out before the ratio is computed.

The relevant period matters when a branch is new. If a Delhi branch registered in the middle of the current year had no turnover in the preceding financial year, the ISD cannot use last year's figures for the group; it uses the last quarter for which turnover of all recipients is available.

Worked examples

Take a company registered in Maharashtra, Karnataka and Delhi. Its ISD registration is in Maharashtra, at the Mumbai head office. Turnover of the three recipients for the preceding financial year: Maharashtra ₹30 crore, Karnataka ₹50 crore, Delhi ₹20 crore, a total of ₹100 crore.

Example 1: a service used by all three registrations

A Mumbai vendor bills the ISD for a group ERP subscription of ₹10,00,000 with CGST ₹90,000 and SGST ₹90,000. The total credit C is ₹1,80,000, and the service is used by all three registrations, so clause (e) applies.

The Maharashtra recipient keeps the CGST and SGST character because it is in the same State as the ISD. The Karnataka and Delhi shares move as IGST under clause (j).

Example 2: a service used by one registration only

A law firm bills the ISD ₹2,00,000 plus IGST ₹36,000 for litigation that concerns only the Karnataka unit. Under clause (c), the whole ₹36,000 goes to Karnataka. Spreading it by turnover would overstate credit in Maharashtra and Delhi and understate it in Karnataka.

Example 3: a service shared by two registrations

A warehouse insurance policy covering only the Karnataka and Delhi warehouses costs ₹4,00,000 plus IGST ₹72,000. Under clause (d) only those two recipients share the credit, on their turnover of ₹50 crore and ₹20 crore:

• Karnataka: 50/70 x ₹72,000 = ₹51,428.57
• Delhi: 20/70 x ₹72,000 = ₹20,571.43

The two shares add back to ₹72,000. Rounding should be handled so the total distributed never exceeds the credit available, which clause (b) prohibits.

GSTR-6 and how credit reaches the branches

The ISD reports distribution in FORM GSTR-6. The GST Portal user guide for GSTR-6 states that the due date is the 13th of every month unless extended, and lists the tables the ISD works through:

• Table 3: input tax credit received for distribution;
• Tables 5 and 8: distribution through ISD invoices and ISD credit notes;
• Table 9: redistribution of credit distributed in earlier returns, used when credit went to the wrong recipient;
• Table 10: late fee for the return period.

On the recipient side, the GST Portal FAQ on GSTR-2B confirms that GSTR-2B includes ITC received through Form GSTR-6, drawing on information filed by ISD taxpayers. For monthly filers, GSTR-2B is generated on the 14th of the succeeding month. A GSTR-6 filed by the 13th therefore feeds the recipients' GSTR-2B generated the next day, which is why a late ISD return shows up as missing credit in branch reconciliations.

ISD and cross charge are different tools

ISD distributes credit on third-party input services received for distinct persons. A cross charge is a taxable supply by one distinct person to another, such as a head office providing its own management services to branches. The starting question is factual: is the head office only receiving a vendor invoice on behalf of branches, or is one registration itself supplying something to another? The answer decides whether the transaction runs through GSTR-6 or through an outward invoice and GSTR-1. Treating the two as interchangeable because both spread shared costs is a common error.

Monthly ISD control checklist

1. Flag every input-service invoice received centrally that relates to other GSTINs, including reverse charge invoices.
2. Exclude goods and capital goods; they cannot pass through the ISD.
3. Where a common service was billed to the normal GSTIN, transfer it to the ISD using the rule 39(1A) invoice or credit note.
4. Tag each invoice as exclusive to one recipient, shared by a subset, or common to all.
5. Separate eligible and ineligible credit before allocation; distribution does not turn blocked credit into eligible credit.
6. Confirm the relevant period and turnover figures, and switch to the last available quarter when a recipient had no turnover in the preceding year.
7. Compute shares tax head by tax head and apply the same-State or different-State rule.
8. Issue ISD invoices or credit notes and file GSTR-6 by the 13th.
9. After the 14th, check that each recipient's GSTR-2B shows the ISD credit and use Table 9 to correct any misallocation.

Mistakes seen in practice

• Leaving common-service credit in the head-office GSTIN because the vendor billed that office.
• Routing goods or capital-goods credit through the ISD.
• Spreading an exclusive or subset service across every branch by turnover.
• Using the preceding year's turnover when a recipient had no turnover in that year.
• Pooling CGST, SGST and IGST into one figure, which breaks the tax-head rules in clauses (h) to (j).
• Postponing distribution to year-end, which clause (a) does not allow.

Updated on 27 September 2026: merged two duplicate ISD guides into this page, added the rule 39 clause-by-clause breakdown, rule 39(1A) transfers, the relevant-period and turnover definitions, three worked allocations and the GSTR-6 table structure, with links to the CBIC text of section 20 and rule 39.