Input Service Distributor registration: mandatory from 1 April 2025

What changed on 1 April 2025?

Many companies have a head office that buys services used by branches registered in other states: audit, legal, advertising, software subscriptions, consultancy. Earlier, such companies could distribute the credit through an ISD or raise cross-charge invoices to branches. The Finance Act 2024 amended section 2(61) and section 20, and from 1 April 2025 the ISD mechanism is mandatory for these common input services.

The amended definition also brings in services taxed under reverse charge. Services the head office provides internally to branches, such as management functions by its own staff, remain outside ISD and continue under the cross-charge rules clarified by CBIC.

Who must register as an ISD?

Any office of a business that receives invoices for input services on behalf of distinct persons, meaning other GSTINs under the same PAN, must register as an ISD. A company with a single GSTIN does not need ISD registration. Neither does an office that receives only invoices for goods or capital goods, because ISD covers services only.

ISD registration is separate from the regular registration of that office and is compulsory under section 24 regardless of turnover. It is obtained through Form REG-01 by selecting Input Service Distributor as the type of registration. A business can have more than one ISD, for example one per state or division.

How credit is distributed

The ISD issues an ISD invoice to each recipient branch and reports the distribution in GSTR-6. Credit attributable to a specific branch goes to that branch only. Common credit is distributed among branches to which the service relates, in proportion to their turnover in the state during the relevant period, as set out in rule 39.

What you need to set up an ISD

Setting up an ISD touches procurement, accounts payable and branch accounting at the same time, so plan carefully before applying for registration. These are the main items to settle first.

• List of common third-party input services and the GSTINs that use them
• Instructions to vendors to bill the ISD GSTIN for common services
• Turnover data of each branch for the proportionate distribution formula
• Process to issue ISD invoices and file GSTR-6 by the 13th
• Separate tracking of reverse charge services, where tax is paid by the registered unit and credit distributed through the ISD

Consequences and common errors

If common service credit is not routed through the ISD, the branches that use the services may not be able to claim it, and the credit can be recovered with interest and penalty. Excess or wrong distribution is recoverable from the recipient branches.

Frequent errors include continuing to cross-charge third-party services after April 2025, getting vendors to bill the regular GSTIN instead of the ISD GSTIN, distributing on headcount instead of turnover, and missing the GSTR-6 due date. GSTR-6 late fee is ₹50 a day, capped at ₹10,000. Refogo's partner professionals can register an ISD and file GSTR-6 for a fixed fee.

Step by step

1. 1Map common services

   Identify third-party and reverse charge services used by more than one GSTIN.

2. 2Apply in REG-01

   Select Input Service Distributor as the registration type and file with documents.

3. 3Update vendor billing

   Ask vendors of common services to invoice the ISD GSTIN.

4. 4Issue ISD invoices monthly

   Distribute credit to branches using the rule 39 turnover formula.

5. 5File GSTR-6

   File GSTR-6 by the 13th of the following month with DSC or EVC.