All About Input Service Distributor (ISD) GST Registration

Under the Goods and Services Tax (GST) framework of India, tax compliance has become more reorganized. However, businesses operating across multiple locations often encounter difficulties in distributing Input Tax Credit (ITC) for common input services. To resolve this issue, the government has mandated Input Service Distributor (ISD) registration, effective from April 1, 2025. An Input Service Distributor (ISD) under GST is an essential mechanism that helps businesses manage and distribute their input tax credits (ITC) related to input services among their various units or branches. This system is especially beneficial for businesses with multiple locations across India, ensuring seamless distribution of ITC under the same PAN but with different GSTINs.

What is ISD in GST Framework?

The ISD mechanism is designed for businesses that incur centralized expenses related to input services and need to distribute the associated ITC to their branches or units. The head office, which acts as the ISD, collects all the input service invoices and distributes the credit to eligible branches based on a proportional method. This ensures an efficient flow of tax credits and minimizes the risk of tax liability discrepancies.

Eligibility for ISD Registration in GST

ISD (Input Service Distributor) under GST is specifically designed for businesses that have multiple branches or locations and need to distribute the Input Tax Credit (ITC) of input services among those branches. Here are the eligibility criteria for obtaining ISD registration:

1. Multiple Business Locations or Branches:

(a) The business must have multiple branches, units, or locations that need to share or use the input services provided by the head office or the central unit.

(b) The head office or a central location (the ISD) will collect and distribute the Input Tax Credit (ITC) to other locations or branches.

2. Involved in Providing Input Services:

(a) The business must be engaged in the provision of input services (such as consulting, legal services, etc.) across various branches or units.

(b) The input services should be centralized (e.g., an office at one location consuming the services that are used by all units or branches).

3. Registered Under GST:

(a) The business must be registered under GST and have an active GSTIN (Goods and Services Tax Identification Number)

(b) It must also be complying with GST norms, such as filing returns and maintaining proper records.

4. Centralized Head Office: There must be a centralized unit or head office that will serve as the Input Service Distributor (ISD). This unit is responsible for collecting the ITC from the input services and distributing it among the eligible branches or locations.

5. Eligibility for GST Credits:

(a) The business must be eligible to avail Input Tax Credit (ITC) on the input services.

(b) The services for which ITC is being distributed should be related to business operations and not for personal use.

6. Only Input Services:

(a) ISD registration is only applicable for distributing input services. ITC on goods and capital goods cannot be distributed through the ISD mechanism.

(b) The ITC related to input services can be transferred to various units based on their usage of such services.

7. No Dual Registration: A single GSTIN is required for the ISD registration. Businesses that want to distribute ITC cannot have multiple GSTINs in different states for ISD purposes. They must operate under one GST registration for distributing ITC across various units.

8. Compliance with Other GST Norms: The business needs to comply with all applicable GST provisions and maintain proper documentation, including records of the services used, the amount of ITC distributed, and the ITC claimed by each unit.

Documents Required for ISD Registration

To apply for ISD (Input Service Distributor) Registration under GST, businesses need to submit specific documents to the GST authorities. These documents ensure that the business meets the eligibility requirements for distributing Input Tax Credit (ITC) across various branches or locations.

Documents Required for ISD Registration in GST

1. Proof of Business Registration

(a) GST Registration Certificate: A copy of your GST registration certificate that includes the GSTIN (Goods and Services Tax Identification Number) of the business.

(b) PAN Card: A PAN card of the business entity (company, partnership, LLP, etc.).

2. Proof of Business Constitution

Depending on the type of business entity, provide the following:

(a) For Companies: A copy of the Certificate of Incorporation and MOA (Memorandum of Association) or AOA (Articles of Association).

(b) For Partnership Firms: A copy of the Partnership Deed.

(c) For Sole Proprietorship: Proof of business ownership (such as trade license or shop & establishment certificate).

(d) For LLPs (Limited Liability Partnerships): A copy of the LLP Agreement.

3. Address Proof of the Business

(a) Address Proof: A utility bill (electricity bill, water bill) or rent agreement (if the premises are rented).

(b) Property Document: If the business owns the premises, provide a copy of the sale deed or property ownership document.

4. Authorized Signatory Documents

(a) Identity Proof of the authorized signatory (e.g., Aadhaar card, passport, voter ID).

(b) Photograph of the authorized signatory.

(c) A letter of authorization from the business (if the authorized signatory is not the owner).

5. Bank Account Details

(a) Cancelled Cheque or Bank Statement to verify the business's bank details.

(b) Bank Certificate (if required) confirming the business's account.

6. Description of Business Activities

(a) A detailed description of the business operations, including the type of input services being used and how they are distributed across different units.

(b) List of services being availed centrally (e.g., legal services, accounting services, etc.).

7. Documents Related to Input Services

(a) Invoices or agreements related to the input services being received centrally (e.g., rent, consultancy, IT services).

(b) A summary of ITC on input services that is being distributed across the different branches/locations.

8. Financial Documents (if required): Some GST authorities may request financial statements or income tax returns of the business to verify the scale of operations.

9. ISO Certificates (if applicable): If your business has any ISO certification or quality standard certifications, provide a copy. This might be required if you are availing ITC on services related to certification or quality control.

10. Affidavit (if required): A self-declaration affidavit stating that the applicant complies with all the eligibility criteria set by the GST authorities and follows all applicable laws.

Step-by-Step Process for ISD Registration

The process of Input Service Distributor (ISD) registration under the Goods and Services Tax (GST) regime involves several critical steps to ensure compliance and efficient distribution of Input Tax Credit (ITC). The initial step is an Eligibility Check, where a business must confirm whether it qualifies for ISD registration. A business is eligible if it receives invoices for input services and intends to distribute the tax credit to its branches having the same PAN but registered under different GST numbers.

Next, the business must Log in to the GST Portal by visiting www.gst.gov.in and entering valid login credentials. Once logged in, the applicant must navigate to Services > Registration > New Registration and select "ISD" as the type of registration. This marks the commencement of the registration process.

The subsequent step is Details Submission, wherein the applicant is required to furnish detailed information about the business, including legal name, trade name, PAN details, and contact information. Additionally, information regarding the authorized signatories and head office must be provided.

Following this, the applicant needs to proceed with the Document Upload stage. Here, all the essential documents, such as the PAN card, proof of business address, identity and address proof of promoters/directors, and authorized signatories, must be uploaded.

Upon successful document submission, the next phase involves Application Submission. This step requires the applicant to review the provided information carefully and finalize the submission by verifying it through a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC).

Once submitted, the application undergoes Verification and Approval by GST authorities. Upon successful verification, an ISD registration certificate is issued, enabling the business to begin the distribution of ITC among its branches.

How ISD Distributes Input Tax Credit (ITC)?

Post-registration, an ISD is responsible for the systematic and compliant distribution of ITC. The distribution is based on the proportion of turnover or usage of input services by each operational unit. Key considerations in the ITC distribution process include the fact that only input services are distributed through ISD and not goods. The ITC must be distributed in a proportional manner based on either the turnover or the specific consumption of services by each unit.

Additionally, the ISD is required to file the ISD Return (GSTR-6) on a monthly basis. This return reports the details of ITC received and distributed among recipient branches. It is essential for the recipient units to reconcile and match the distributed ITC with their respective GST returns to ensure accurate credit reflection.

Scenarios for ITC Distribution by ISD

The method of distributing ITC varies depending on the usage pattern of the received services. If a service is used exclusively by one unit, the corresponding ITC is allocated solely to that particular unit. In cases where a service is utilized by multiple units but not all, the ITC is distributed proportionally based on the operational turnover of the units involved. For services that are used by all units, the ITC distribution is proportionate to the total turnover of each operational unit, ensuring fairness and accuracy.

Important Conditions for ITC Distribution

There are several critical conditions that ISDs must adhere to while distributing ITC. Firstly, the ISD must distribute the received ITC within the same month to ensure timely credit allocation. The distribution should never exceed the total available ITC to prevent discrepancies. Starting from April 2025, ITC pertaining to reverse charge supplies can also be distributed. For transparency and compliance, separate ISD invoices must be issued for each credit distribution.

Moreover, it is important for ISDs to ensure accurate and proportionate credit distribution to avoid penalties. Any discrepancies or errors in distribution can lead to legal implications and financial penalties. Therefore, meticulous record-keeping and accurate calculations are essential.

Handling Debit and Credit Notes

Managing debit and credit notes is another vital responsibility for ISDs. For Debit Notes, which result in an increase in ITC, the additional credit must be distributed in the month it is reported in GSTR-6. This ensures timely and correct reflection of the increased ITC in the recipient units' records.

In the case of Credit Notes, which reduce the previously distributed ITC, the reduction must be proportionally adjusted in the recipient's credit account. If the reduced amount exceeds the distributable ITC, it must be added to the recipient's output tax liability. This adjustment ensures that there are no discrepancies in the recipient’s tax liability and credit balance.

ISD registration and the subsequent ITC distribution process are important aspects of GST compliance. Businesses must follow the outlined steps meticulously and adhere to the important conditions to ensure accurate credit distribution and avoid potential penalties. Proper handling of debit and credit notes further ensures seamless tax credit management within the organization.

Conclusion

ISD (Input Service Distributor) under GST is a structured mechanism for businesses to efficiently manage and distribute input tax credits across multiple branches. By ensuring accurate ITC distribution and timely return filings, businesses can optimize their GST compliance processes. This not only simplifies tax management but also helps in reducing the tax burden on various units. Thus, having knowledge and adhering to the ISD process is important for businesses aiming to simplify their GST operations.

If you need any support in ISD Registration under GST, then you can connect with Compliance Calendar experts through mail info@ccoffice.in or Call/Whatsapp us at +91 9988424211.

Frequently Asked Questions

Q1. What is an Input Service Distributor (ISD) under GST?

Ans. An ISD is a taxpayer registered under GST who is responsible for receiving input service invoices and distributing the input tax credit (ITC) to their branches registered under the same PAN but different GSTINs.

Q2. Is ISD registration mandatory under GST?

Ans. Yes, as per Notification No. 16/2024, ISD registration is mandatory from 1st April 2025 for businesses wishing to distribute ITC among their branches.

Q3. Can ITC on goods and capital goods be distributed by ISD?

Ans. No, ISD can only distribute ITC related to input services, not goods or capital goods.

Q4. How is ITC distributed by ISD?

Ans. ITC is distributed based on the proportion of turnover or usage of input services by each unit, and it must be reported monthly via GSTR-6.

Q5. What documents are required for ISD registration?

Ans. Key documents include GST registration proof, PAN card, address proof, authorized signatory documents, and a description of business activities.

Q6. What happens if an ISD wrongfully distributes ITC?

Ans. Any wrongful or excess distribution of ITC will be recovered from the recipient along with interest, following the provisions of 'Demand and Recovery.'

Q7. Can an ISD distribute ITC on reverse charge supplies?

Ans. Yes, from 1st April 2025, ISD can distribute ITC on reverse charge supplies as per the amended CGST Act.

Q8. Is filing an annual return mandatory for ISD?

Ans. No, ISD is not required to file an annual return (GSTR-9) but must file GSTR-6 monthly to report ITC distribution.