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INPUT SERVICE DISTRIBUTOR
As per Notification No: 12/2024 Central Tax dated 10.07.2024: CBIC Amended Rule 39 of CGST Rule 2017, which was confirmed by Notification No 16/2024 of Central tax dated 16/2024 to made ISD provision mandatory effective from 1st April 2025.

Furthermore, union Budget amended section 2 and 20 of CGST Act clarify in detail about the reverse Charge
Mechanism provision of Section 5(3) and 5(4) of IGST Act.
As per Section 16/2024 of Central tax 🙂 In the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereinafter
referred to as the Central Goods and Services Tax Act), in section 2, for clause (61), the following clause shall be
substituted, namely: ––
‘(61) “Input Service Distributor” means an office of the supplier of goods or services or both which receives tax
invoices towards the receipt of input services, including invoices in respect of services liable to tax under subsection
(3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable
to distribute the input tax credit in respect of such invoices in the manner provided in section 20
For section 20 of the Central Goods and Services Tax Act, the following section shall be substituted,
namely:––
Manner of distribution of credit by Input Service Distributor.
“20. (1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of
input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of
section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input
Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such
invoices.
(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices
received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under
sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said
Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may
be prescribed.
(3) The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax
or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be
prescribed.”.
Rule 39 : Procedure for distribution of Input tax credit by Input Service Distributor-
Central Goods and Service Tax Act 2017
39. Procedure for distribution of input tax credit by Input Service Distributor.-
(1) An Input Service Distributor shall distribute input tax credit in the manner and subject to the following conditions,
namely: ––
(a) the input tax credit available for distribution in a month shall be distributed in the same month and the details
thereof shall be furnished in FORM GSTR-6 in accordance with the provisions of Chapter VIII of these rules;
(b) the amount of the credit distributed shall not exceed the amount of credit available for distribution;
(c) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed
amongst 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;
(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such
recipients 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 recipients and which
are operational in the current year, during the said relevant period;
(f) the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) to
one of the recipients “R1”, whether registered or not, from amongst the total of all the recipients to whom input tax
credit is attributable, including the recipients who are engaged in making exempt supply, or are otherwise not
registered for any reason, shall be the amount, “C1”, to be calculated by applying the following formula –
C 1 = (t 1 / T) x C
where,
“C” is the amount of credit to be distributed,
“t1 ” is the turnover, as referred to in clause (d) and (e), of person R1 during the relevant period, and
“T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is
attributable in accordance with the provisions of clause (d) and (e);
(g) the Input Service Distributor shall, in accordance with the provisions of clause (d) and (e), separately distribute
the amount of ineligible input tax credit (ineligible under the provisions of sub-section (5) of section 17 or otherwise)
and the amount of eligible input tax credit;
(h) the input tax credit on account of central tax, State tax, Union territory tax and integrated tax shall be distributed
separately in accordance with the provisions of clause (d) and (e);
(i) the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every
recipient;
(j) the input tax credit on account of central tax and State tax or Union territory tax shall–
(i) in respect of a recipient located in the same State or Union territory in which the Input Service Distributor is
located, be distributed as input tax credit of central tax and State tax or Union territory tax respectively;
(ii) in respect of a recipient located in a State or Union territory other than that of the Input Service Distributor, be
distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of
input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient as
referred to in clause (d) and (e);
(k) the Input Service Distributor shall issue an Input Service Distributor invoice, as provided in sub-rule (1) of rule
54, clearly indicating in such invoice that it is issued only for distribution of input tax credit;
(l) the Input Service Distributor shall issue an Input Service Distributor credit note, as provided in sub-rule (1) of
rule 54, for reduction of credit in case the input tax credit already distributed gets reduced for any reason;
(m) any additional amount of input tax credit on account of issuance of a debit note to an Input Service Distributor
by the supplier shall be distributed in the manner and subject to the conditions specified in clauses (a) to (j) and
the amount attributable to any recipient shall be calculated in the manner provided in clause (f) and such credit
shall be distributed in the month in which the debit note is included in the return in FORM GSTR-6;
(n) any input tax credit required to be reduced on account of issuance of a credit note to the Input Service Distributor
by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in
the original invoice was distributed in terms of clause (f), and the amount so apportioned shall be-
(i) reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM
GSTR-6; or
(ii) added to the output tax liability of the recipient where the amount so apportioned is in the negative by virtue of
the amount of credit under distribution being less than the amount to be adjusted.]
(1A) For the distribution of credit in respect of input services, attributable to one or more distinct persons, subject
to levy of tax under sub-section (3) or (4) of section 9, a registered person, having the same PAN and State code
as an Input Service Distributor, may issue an invoice or, as the case may be, a credit or debit note as per the
provisions of sub-rule(1A) of rule 54 to transfer the credit of such common input services to the Input Service
Distributor, and such credit shall be distributed by the said Input Service Distributor in the manner as provided in
sub-rule (1).
(2) If the amount of input tax credit distributed by an Input Service Distributor is reduced later on for any other
reason for any of the recipients, including that it was distributed to a wrong recipient by the Input Service Distributor,
the process specified in clause (n)of sub-rule (1) shall apply, mutatis mutandis, for reduction of credit.
(3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the Input Service Distributor credit
note specified in clause (l)of sub-rule (1), issue an Input Service Distributor invoice to the recipient entitled to such
credit and include the Input Service Distributor credit note and the Input Service Distributor invoice in the return
in FORM GSTR-6 for the month in which such credit note and invoice was issued.
Explanation. — For the purpose of this rule, –
(i) the term “relevant period” shall be—
(a) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the
year during which credit is to be distributed, the said financial year; or
(b) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial
year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover
of all the recipients are available, previous to the month during which credit is to be distributed;
(ii) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent
Account Number as that of the Input Service Distributor;
(iii) the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as
goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied
under entries 84 and 92A of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of
the said Schedule.
FAQ ON ISD
Q- What is an Input Service Distributor (ISD)?
R- An Input Service Distributor (ISD) is a mechanism under GST for distributing the input tax credit (ITC) on
common input services. It is a way for a centralised office, such as a Head Office (HO), to distribute the ITC
related to common services received from external vendors to its various branches or units that benefit from
these services. ISD is specifically for services, not for goods or capital goods.
Q- When will ISD become mandatory?
R- Before the notification no. 16/2024-Central Tax dated 6th August 2024, the ISD mechanism was not
mandatory. However, the government amended sec 2(61) and sec 20 of the CGST Act, 2017 via said notification
and made the ISD provisions mandatory, effective from 1st April 2025.
Q- What types of businesses need ISD registration?
R- Your business likely needs ISD registration if:
You have multiple GSTINs under one Permanent Account Number (PAN).
You receive invoices for services utilised across multiple branches or units. These are common input
services such as advertising, legal, consulting, or software services.
Centralised service costs are incurred at the head office and distributed among branches.
You currently use cross-charge methods for ITC allocation related to common services from external vendors.
The GST law mandates ISD registration for distributing ITC related to these services, regardless of turnover
thresholds.
Q- How does ISD differ from Cross Charge?
R- Cross charge pertains to the supply of goods or services between distinct persons (entities with the same PAN
but different GSTINs) within the same legal entities.These are internal transactions, like a HO providing centralised
accounting or IT support to its branches, and are treated as a supply even without consideration.
ISD, on the other hand, is a mechanism for distributing ITC on input services received from external vendors by a
centralised office that are attributable to multiple distinct persons such as branches.
Essentially, cross charge deals with the value of internally provided services, while ISD deals with the distribution
of tax credit on externally sourced services.