Input Service Distributor (ISD)Credit Distribution Mechanism for Multi-Branch Businesses
The ISD mechanism allows businesses with multiple branches to distribute ITC on common input services received at head office to various branches proportionately, ensuring seamless credit flow across the organization.
ITC Distribution Methods & Rules
Pro-Rata Distribution (Turnover-Based)
ITC distributed in the ratio of turnover of each recipient unit to total turnover of all recipient units during the relevant period. This is the standard method for common credits.
Direct Attribution
When an input service is used exclusively by one unit/branch, the entire ITC is distributed to that specific unit. No pro-rata calculation needed for directly attributable credits.
Ineligible Credit Handling
ITC that is ineligible under Section 17(5) — such as personal consumption, club memberships — must not be distributed. ISD must identify and exclude blocked credits.
IGST Credit Distribution
IGST credit received by ISD can be distributed as IGST to units in other states or as CGST+SGST to units in the same state. The nature of output supply determines conversion.
Credit Notes & Adjustments
If ITC distributed is later reduced due to credit notes, the ISD must issue an ISD credit note and reduce the credit of respective recipient units proportionately.
Mandatory Conditions
ISD can only distribute credit to recipients on the document issued — distribution cannot exceed available credit, and recipient must be operational at the time of distribution.
ISD Compliance Workflow
Obtain ISD Registration
Separate registration as ISD under Section 24 — distinct from normal GSTIN
Receive Tax Invoices
Collect invoices for common services (rent, audit, IT, advertising) at head office
Classify Credits
Segregate into directly attributable vs. common credits; identify blocked credits
Calculate Pro-Rata Ratio
Compute turnover ratio of each unit for common credit distribution
Issue ISD Invoices
Generate ISD invoices (Rule 54(1)) to each recipient with distributed credit details
File GSTR-6
File monthly ISD return by 13th of the following month with distribution details
Frequently Asked Questions
What is an Input Service Distributor (ISD) in GST?
An ISD is an office of a supplier of goods/services that receives tax invoices for input services and distributes the credit to other units (branches/divisions) registered under the same PAN. It is governed by Section 20 of CGST Act and Rule 39. Common examples include corporate head offices that procure centralized services like IT, legal, audit, and advertising.
Is ISD registration mandatory?
ISD registration is mandatory if a business has multiple GSTINs (branches in different states) and receives common input service invoices at one location that need to be distributed. Without ISD registration, the branch receiving the invoice cannot pass on ITC to other branches. However, if all units are in the same state under one GSTIN, ISD is not needed.
How is ITC distributed by an ISD — what formula is used?
For common credits: ITC to Unit A = (Turnover of Unit A ÷ Total Turnover of All Units) × Total Common ITC. Turnover means the turnover in the state/UT of the recipient during the relevant period. For directly attributable credits, 100% goes to the specific unit that used the service. Ineligible credits under Section 17(5) are excluded entirely.
Can ISD distribute credit of goods (not just services)?
From April 2023 onwards (post-Finance Act 2022 amendment), ISD can distribute ITC on both input services AND capital goods/inputs received at the ISD office. Previously, ISD was limited to input services only. This expanded scope allows centralized procurement offices to distribute goods credit as well.
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