An Input Service Distributor (ISD) is a GST mechanism for allocating input tax credit on common input services from a central or shared office to other GST registrations under the same PAN. It is especially relevant for groups with a head office that receives invoices for services such as audit, software, consulting, advertising or other centrally procured services used by multiple locations.
What an Input Service Distributor actually does
The CGST Act defines an Input Service Distributor as an office of a supplier that receives tax invoices for input services and distributes the related credit to suppliers having the same PAN. The mechanism is therefore about input services and credit allocation; it is not a general method for moving every type of GST credit between registrations. The statutory framework is available in the CGST Act published by CBIC.
A useful way to think about ISD is to separate three questions: who received the common service invoice, which GST registrations actually benefited from that service, and how the related credit should be allocated among those registrations.
When ISD becomes relevant in practice
Consider a company with a head office in Delhi and operating GST registrations in Delhi, Maharashtra and Karnataka. A consulting firm issues one invoice to the designated ISD for a project supporting all three locations. Instead of leaving the entire credit at the invoice-receiving office, the ISD framework provides a documented route to distribute the service-related credit to the registrations to which the service is attributable.
This is different from an invoice that relates only to one recipient. Section 20 provides that credit attributable to one recipient should be distributed only to that recipient. Where a service is attributable to more than one recipient, distribution is made among the relevant recipients on the prescribed turnover basis. Where it is attributable to all recipients, the allocation extends across all relevant recipients using the statutory turnover approach.
ISD is not the same as cross-charge
One of the most common GST mistakes is treating ISD and cross-charge as interchangeable. They solve different problems. ISD distributes input tax credit relating to input services received for relevant registrations. Cross-charge generally concerns a taxable supply made by one distinct person or registration to another, depending on the underlying facts and GST law.
For example, a third-party software subscription invoiced centrally and used by several registrations raises an ISD allocation question. By contrast, services actually performed by employees or resources of one registered establishment for another establishment may require a separate analysis of whether there is a supply between distinct persons. Do not decide the treatment merely by asking which office paid the bill.
How the distribution logic works
The core control is attribution before allocation. The CBIC input tax credit rules set out the procedure for distribution, including separate treatment of eligible and ineligible credit and the prescribed turnover-based allocation for common credit.
- Step 1: identify the invoice. Confirm that the document relates to an input service received for distribution through the ISD mechanism.
- Step 2: identify beneficiaries. Determine whether the service relates to one GST registration, a defined subset of registrations, or all relevant registrations.
- Step 3: test eligibility. Separate eligible credit from ineligible credit rather than assuming that distribution makes an otherwise blocked credit available.
- Step 4: allocate correctly. Directly attributable credit goes to the relevant recipient; common credit is apportioned under the prescribed turnover methodology.
- Step 5: issue the prescribed ISD document. Maintain the document trail supporting the amount distributed to each recipient.
- Step 6: report through GSTR-6. Reconcile invoice-level inward credit, distributions, amendments and credit notes before filing.
What is GSTR-6?
GSTR-6 is the return for an Input Service Distributor. The GST Portal's official GSTR-6 user guide shows that the return captures input tax credit received for distribution and the related distribution details. The portal currently states that the due date is the 13th of every month unless extended.
The return should be treated as the reporting output of the ISD reconciliation, not as the starting point. Before filing, the finance team should have a controlled invoice register showing supplier GSTIN, invoice number and date, tax components, service description, beneficiary registrations, eligibility status, allocation basis and the ISD document reference.
Worked example: common professional-services invoice
Assume an ISD receives a professional-services invoice carrying ₹1,80,000 of GST. The service supports three operating registrations, but the engagement evidence shows that only Maharashtra and Karnataka benefited. The team should not automatically divide the credit among every GSTIN under the PAN. It should first restrict the recipient pool to the registrations to which the service is attributable and then apply the prescribed allocation rule to that pool.
If part of the invoice relates exclusively to Maharashtra and the remainder is genuinely common to Maharashtra and Karnataka, the exclusively attributable portion should be identified separately before applying the common-credit allocation. This produces a more defensible result than allocating the full invoice using one blanket percentage.
Documents a finance team should retain
- Supplier tax invoice and any debit or credit note.
- Contract, purchase order or engagement letter showing the nature and beneficiaries of the service.
- Working that identifies direct and common portions of the service.
- Turnover data and calculation used for any pro-rata distribution.
- Eligibility review, including the reason for treating any portion as ineligible.
- ISD invoices or credit notes issued for distribution.
- GSTR-6 reconciliation and filing evidence.
CBIC's invoice rules specify particulars for an ISD invoice or ISD credit note, including the ISD's identity, recipient GSTIN, document number and date, and the amount of credit distributed.
Common ISD mistakes
- Using ISD as a catch-all mechanism for goods, capital goods or unrelated credits instead of first checking whether the credit concerns input services.
- Distributing a service to every GSTIN merely because all registrations share the same PAN.
- Ignoring direct attribution and applying a turnover ratio to an invoice that belongs to only one recipient.
- Distributing blocked or otherwise ineligible credit as though allocation itself cures the eligibility problem.
- Confusing a third-party common-service invoice with an inter-branch supply that requires a separate distinct-person or cross-charge analysis.
- Filing GSTR-6 without retaining the invoice-level allocation working that explains how each distributed amount was derived.
Month-end ISD control checklist
- Freeze the month's central input-service invoice register.
- Map each invoice to the GST registrations that actually benefited.
- Separate directly attributable amounts from genuinely common amounts.
- Review ITC eligibility before distribution.
- Apply the prescribed allocation basis to common credit and preserve the turnover source.
- Issue the required ISD documents with complete particulars.
- Reconcile the distribution register to GSTR-6 and investigate amendments or credit notes.
- Confirm that recipient-side accounting agrees with the distributed credit trail.
Practical takeaway
A strong ISD process is not simply a monthly percentage allocation. It is an evidence-based chain from supplier invoice to beneficiary identification, eligibility review, statutory allocation, ISD document and GSTR-6 reporting. Finance teams should classify each central service before distributing credit and keep ISD separate from the distinct question of whether an inter-branch supply requires cross-charge treatment.
