Navigating ISD Compliance Under GST: A Strategic Guide for Businesses

Introduction

As businesses expand across multiple locations in India, handling common services like marketing, HR, and administration becomes a challenge, especially under the Goods and Services Tax (GST) regime. The Input Service Distributor (ISD) mechanism simplifies this process by allowing centralized offices to allocate Input Tax Credit (ITC) across branches. This blog demystifies ISD compliance and offers a clear roadmap for businesses to follow.

What is an Input Service Distributor (ISD)?

An ISD is an office that receives tax invoices for input services and distributes the ITC to various GST registrations under the same PAN. It's important to note that only input services (not goods) qualify for ITC distribution under this scheme.

Why ISD Registration Matters

ISD requires a separate GST registration, even if the office is already GST-registered for supply purposes. As of 1 April 2025, new amendments make ISD compliance mandatory in certain cross-branch service transactions. This includes scenarios involving Reverse Charge Mechanism (RCM) services. Failure to comply could result in reversal of ITC along with interest and penalties.

Key ISD Compliances

Clause	Condition	Mechanism
(a)	Monthly available ITC	Distribute in same month via GSTR-6
(b)	Distribution cap	Cannot exceed available ITC
(c)	Single-recipient ITC	Distribute to that recipient only
(d)	Multiple recipients	Pro-rata based on state-wise turnover
(e)	All recipients	Pro-rata to all based on turnover
(f)	Distribution Formula	C1 = (t1/T) × C
(g)	Credit segregation	Separate eligible vs ineligible
(h)	Tax type distribution	Distribute CGST, SGST/UTGST, IGST separately
(i)	IGST distribution	Distribute as IGST
(j)	CGST/SGST distribution	Same state: as-is; Other state: as IGST
(k)	ISD Invoice	Must specify “for distribution of ITC only”
(l)	Credit note issuance	To reduce earlier distributed credit
(m)	Debit note	Distribute newly added credit
(n)	Credit note adjustments	Based on original ratio; may add to output tax

Action Steps: Stay ISD Compliant

- Register for ISD if you receive centralized services.

- Use Form GSTR-6 monthly to distribute ITC.

- Track invoices properly across branches.

- Segregate credits and ensure accurate turnover data.

Conclusion

The ISD mechanism mandates a structured process of availing and distributing ITC on shared services. Businesses should periodically review their ISD framework, take professional advice, and ensure proper documentation and reporting to avoid future tax disputes.
If your business operates across multiple states and receives centralized services, ISD compliance isn’t just a regulatory formality—it’s a strategic necessity.

Frequently Asked Questions

Q1. Who is an Input Service Distributor?

An ISD is an office receiving input service invoices and redistributing ITC across branches with the same PAN.

Q2. Is ISD mandatory?

Yes. As per the Finance Act, 2025, using ISD for eligible service ITC distribution is mandatory.

Q3. What is the due date for GSTR-6?

The 13th of the month following the relevant month.

Q4. Can goods ITC be distributed through ISD?

No. Only input services qualify under ISD.