Maximize Your Tax Efficiency with Input Service Distribution (ISD) Under GST

To address this, the government has made ISD registration mandatory from 1 April 2025 (Notification No. 16/2024-Central Tax, dated 6 August 2024).
 

Why does ISD matt​​​er?

ISD ensures that ITC on common input services—such as consultancy, marketing, legal, security, and IT services — is distributed efficiently across business units, avoiding accumulation in one location while others remain underutilized.

For example, ABC Ltd., headquartered in Mumbai with branches in Gurgaon, Bangalore, and Kolkata, incurs GST on legal and consulting services at the head office. Using ISD, it distributes the ITC among branches based on their turnover, ensuring fair credit utilization and improved cash flow.

What are the key highlights of the ISD provisions under GST regula​​tions?

• ISD applies only to input services, not goods or capital goods.
• Mandatory ISD registration for businesses with multiple units using common services.
• ITC is allocated proportionately based on mechanism as provided in GST regulations.
• Timely compliance required to avoid penalties.
   
  

Who Needs ISD Regist​ration?

• Businesses with multiple locations availing common input services centrally.
• Companies looking to enhance tax efficiency and compliance.
   
  

What are the Compliance Requirements ​under ISD?

• ITC must be distributed as per prescribed regulations in the same month of service receipt.
• File GSTR-6 by the 13th of each month.
• Maintain proper records, including ISD invoices.
   
  

How to Prepare for ISD Implementation?

1. Identify if ISD registration is required for your business.
2. Classify common expenses and determine the ISD registration location.
3. Update IT and accounting systems for ISD compliance.
4. Ensure vendors issue invoices in the name of the ISD unit.
5. Train finance teams on efficient ITC distribution. 
    
   

Example of ITC Distribution for ABC ltd. Having multiple locations across India:​

Under Rule 39 of CGST Rules, 2017, ITC is distributed proportionally based on turnover:

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​With ISD becoming mandatory, businesses must act now to ensure compliance.

Our team of GST specialists can assist you in:

• Assessing ISD applicability
  
• Optimizing ITC distribution strategies
  
• Ensuring full regulatory compliance with minimal effort