Input Service Distributor (ISD) under GST

Who is an Input Service Distributor (ISD) under GST?

An Input Service Distributor (ISD) is an office of the supplier of goods or services or both that receives tax invoices for input services.
This includes invoices for services liable to tax under section 9(3) or 9(4) of the CGST Act, 2017, related to reverse charge.
The ISD distributes the input tax credit to suppliers of taxable goods or services who have the same Permanent Account Number (PAN) as the ISD.
To function as an ISD, the office must be registered as an Input Service Distributor.
The definition of “Input Service Distributor” explicitly includes the distribution of input tax credit for inter-state supplies on which tax is paid on a reverse charge basis. This is achieved by referencing sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax (IGST) Act.

Situations where ISD is not applicable

ISD is not applicable for distributing input tax credit on capital goods or inputs

Purpose of registering as ISD

The purpose of registering as an ISD is to distribute the credit of central tax (CGST), State tax (SGST), integrated tax (IGST), or Union territory tax paid on input services to suppliers of taxable goods or services.
The ISD mechanism is being made mandatory for distributing ITC related to input services procured by the Head Office (HO) from a third party but attributable to both HO and Branch Office (BO) or exclusively to one or more BOs.

Conditions to be fulfilled by ISD

Registration: The ISD must be registered under clause (viii) of Section 24 of the CGST Act.
Distribution of credit: The ISD must distribute input tax credit in the same month it is available and report it in FORM GSTR-6.
Credit amount: The amount of credit distributed cannot exceed the amount of credit available for distribution.
Attribution: Credit for tax paid on input services attributable to a recipient must be distributed only to that recipient.
Multiple recipients: Credit for tax paid on input services attributable to multiple recipients should be distributed among them based on their turnover in a State or Union territory during the relevant period.
Ineligible and eligible credit: ISDs must separately distribute ineligible input tax credit (under Section 17(5) or otherwise) and eligible input tax credit.
Tax types: Input tax credit for central tax, State tax, Union territory tax, and integrated tax must be distributed separately.
Invoicing: The ISD must issue an Input Service Distributor invoice, as per Rule 54(1), clearly indicating it is only for input tax credit distribution.
Credit notes: The ISD should issue a credit note, as per Rule 54(1), for credit reduction if the input tax credit already distributed is reduced for any reason.
Returns: Every Input Service Distributor shall furnish a return, electronically, within thirteen days after the end of such month.

Distribution of Input Tax Credit

Manner of distribution: The input tax credit available for distribution in a month must be distributed in the same month, and the details furnished in FORM GSTR-6.
Multiple recipients: Credit for tax paid on input services attributable to multiple recipients should be distributed among such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period.
Tax types: Input tax credit for central tax, State tax, Union territory tax, and integrated tax must be distributed separately.
Integrated tax distribution: Input tax credit on account of integrated tax should be distributed as input tax credit of integrated tax to every recipient.
Central/State/UT tax distribution: For recipients in the same State or Union territory as the ISD, the credit should be distributed as input tax credit of central tax and State tax or Union territory tax, respectively. If the recipient is in a different State or Union territory, the credit is distributed as integrated tax.
Excess Credit Distribution: If the Input Service Distributor distributes the credit in contravention of the provisions contained in section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest, and the provisions of section 73 or section 74 or section 74A, as the case may be, shall, mutatis mutandis, apply for determination of amount to be recovered.

Input Service Distributor in GST : Updated Study Material 2025