What Is an Input Service Distributor (ISD)?
One audit fee, one advertising bill and one software subscription can serve five branches at once, and the GST credit on them has to reach each one.
An input service distributor (ISD) is an office of a business that receives the tax invoices for services used by its branches and passes the GST credit on those invoices to the branches that used them. Under India’s GST law it holds its own separate registration, and since 1 April 2025 routing shared service credit through it is compulsory, not a choice.
Who Needs an ISD Registration
Three things have to be true together: one PAN, more than one GSTIN under it, and a service bill from an outside vendor that lands at one office but was used by another GSTIN, or by several. Meet all three and the office receiving that bill needs an ISD registration, whatever its turnover, because this registration has no threshold.
Plenty falls outside that test:
- A single GSTIN. Ten outlets in one state under one registration share nothing across GSTINs.
- A franchise. Each outlet usually sits under a different owner’s PAN, so there is no common input tax credit to split.
- Goods and equipment. An ISD covers services only, never stock or capital goods.
How an ISD Distributes Credit
Rule 39 of the CGST Rules sets the method, and the current text is on the CBIC site.
| Step | What the rule asks |
|---|---|
| Timing | Credit that arrives in a month is passed on in that same month |
| One user | A service used by one branch goes wholly to that branch |
| Shared | A shared service is split by turnover among branches still operating this year |
| Period | Previous financial year. If a branch had no turnover in it, the latest quarter with figures for all branches |
| Paper | An ISD invoice goes to each branch, and GSTR-6 is filed by the 13th |
The branch then claims the amount like any other credit on its purchases. Credit on services taxed under the reverse charge mechanism can travel the same road, but only after the regular registration in the ISD’s own state, which pays that tax, transfers the credit to the ISD by invoice. That is worth a word with your CA.
ISD vs Cross Charge
This is the pair people mix up, and the two do different jobs.
| Aspect | ISD | Cross charge |
|---|---|---|
| Covers | An outside vendor’s bill shared by branches | Head office’s own support to branches |
| Document | ISD invoice | Tax invoice |
| GST charged | None, credit is only passed on | Yes, but any invoiced value, even nil, is accepted where the branch gets full credit |
| Return | GSTR-6 | GSTR-1 and GSTR-3B |
So the auditor’s fee goes through the ISD, while the head office accounts team’s time is a cross charge.
Input Service Distributor Example
A sweets and namkeen chain has its head office in Ajmer and branches registered in Rajasthan, Gujarat and Madhya Pradesh. In June 2026 a Jaipur agency bills the head office Rs.4,80,000 for a brand campaign, plus GST of Rs.86,400.
| Branch | 2025-26 turnover | Share | Credit passed on |
|---|---|---|---|
| Rajasthan | Rs.3.6 crore | 60% | Rs.51,840 as CGST and SGST |
| Gujarat | Rs.1.8 crore | 30% | Rs.25,920 as IGST |
| M.P. | Rs.0.6 crore | 10% | Rs.8,640 as IGST |
Note: this is an invented example for illustration only. The chain, the agency and the figures are not real.
The three amounts add back to Rs.86,400. And the ISD registration at head office raises three ISD invoices in June, one of them to the chain’s regular Rajasthan GSTIN, and reports them in the GSTR-6 due on 13 July 2026. Each branch’s share then shows up in its GSTR-2B.
What Skipping the ISD Route Can Cost
Before April 2025 many chains took the whole credit at head office, and frankly the habit has outlived the law in a lot of accounts departments. Today the GST department can dispute that credit and demand it back, with interest if it was used, and section 122 of the CGST Act adds a penalty of Rs.10,000 or the credit wrongly taken or distributed, whichever is higher.
But the smarter approach is to fix the split once a year. Our GST ITC reconciliation template helps each branch check what reached it.
Know Each GSTIN’s Turnover for the ISD Split
Every split starts from one number per GSTIN: last year’s turnover.
For retail businesses, Petpooja Invoice lists head office management and GSTR-1, 2 and 3B reports among its features.
For restaurants, Petpooja POSS serves large chains among other formats and reports day-end sales and online orders, and our guide on how to manage chain restaurants covers the wider setup.
Pull last year’s sales for each GSTIN before the first split of the financial year, since a GSTR-1 is filed per registration.
Frequently Asked Questions
Yes, since 1 April 2025, for an office that receives outside service invoices on behalf of other GSTINs under the same PAN. Before that date it was optional.
No. It covers input services only. Credit on stock, raw material or equipment stays with the GSTIN that bought it.
Usually not. If every outlet works under one GSTIN, there is nobody to distribute to. That changes once a second registration exists, even inside the same state.
GSTR-6, by the 13th of the following month. It lists the service invoices received and the credit passed to each branch.
By turnover. Each branch gets a share equal to its state turnover divided by the total turnover of all branches that used the service and are still operating this year, usually taken from the previous financial year.
