Last updated: 12 August 2026. If one office of your business receives invoices for services that several of your GST registrations use (a group audit fee, a software subscription, a national ad campaign), that office has had to register separately as an Input Service Distributor and pass the credit down through Form GSTR-6 since 1 April 2025. It stopped being optional then.
Applicability Note: This guide reflects Section 20 of the CGST Act and Rule 39 of the CGST Rules as in force on 12 August 2026. Always verify the current position on gst.gov.in or with a GST professional before acting.
Who Should Care?
- Any business with two or more GSTINs on one PAN — across States or within one, the moment a shared service invoice lands at one of them.
- Head offices signing group-level contracts for audit, legal, insurance, software or advertising.
- Finance teams still running everything through cross-charge — it survives, but no longer covers third-party common input services.
- Anyone with an active ISD registration — the July 2026 GSTR-6 is due Thursday, 13 August 2026, nil return included.
1. What an ISD Is, and What It Cannot Do
An Input Service Distributor is defined in Section 2(61) of the CGST Act: an office of a supplier that receives tax invoices for input services for or on behalf of distinct persons, and distributes that credit to them. Distinct persons here means your other registrations on the same PAN, under Section 25(4).
Two limits sit inside that definition and cause most of the confusion. The first: an ISD distributes credit on services only. A laptop bought centrally and shipped to a branch is not an ISD transaction — it is a stock transfer between distinct persons, taxed as a supply.
The second is that ISD registration is a separate registration under Section 24(viii), with its own GSTIN, not a tick-box on the registration you already hold. The same office ends up with two numbers: its normal one for its own supplies, and an ISD one that exists purely to receive and pass on credit. For the ISD registration the periodic return is GSTR-6; an ISD sits outside the annual return under Section 44(1), and Rule 80 keeps it out of GSTR-9.
2. What Changed on 1 April 2025
Until 31 March 2025, nothing forced a head office to be an ISD in the first place. Section 20 told an ISD how to distribute credit once it had registered as one, and Circular No. 199/11/2023-GST dated 17 July 2023 confirmed the mechanism itself was not compulsory — the cost could instead be recovered from the branches by cross-charge. That position is now history for third-party common input services.
Section 20 and Section 2(61) were substituted by sections 12 and 11 respectively of the Finance Act, 2024 (Act 8 of 2024) and brought into force on 1 April 2025 by Notification No. 16/2024-Central Tax dated 6 August 2024. Such an office now "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". The substituted Rule 39 came through Notification No. 12/2024-Central Tax dated 10 July 2024, effective the same date under Notification No. 09/2025-Central Tax dated 11 February 2025.
Reverse-charge input services are inside the mechanism now: Section 2(61) covers services taxed under Section 9(3) or 9(4), and the Finance Act 2025 added inter-State reverse charge under Section 5(3) and 5(4) of the IGST Act from the same date — with Rule 39(1A) brought into line by Notification No. 13/2025-Central Tax dated 17 September 2025, backdated to 1 April 2025. All of this has been live for well over a year, so a group still routing every shared invoice through a monthly cross-charge is running an arrangement the law stopped permitting in April 2025.
3. ISD or Cross-Charge? The Line Between Them
Both mechanisms still exist. Who bought the service decides which one applies.
| Situation | Route | Authority |
|---|---|---|
| Third-party invoice for a service used by two or more GSTINs (audit, insurance, software) | ISD — compulsory | Section 20 read with Section 24(viii) |
| Service generated in-house by one office for another (HO management, HR, treasury) | Cross-charge — a supply between distinct persons | Schedule I, para 2; Circular No. 199/11/2023-GST dated 17 July 2023 |
| Goods or capital goods bought centrally and moved to a branch | Stock transfer, taxed as a supply | Section 25(4) read with Schedule I |
| Third-party service used only by the office that got the invoice | Neither — claim it there | Section 16 |
Circular No. 199/11/2023-GST dated 17 July 2023 still governs how a cross-charge is valued: where the recipient branch is eligible for full input tax credit, the value declared in the head office's invoice is deemed to be the open market value, and including the cost of internally generated services such as salaries is not mandatory. What the circular no longer settles is the choice between the routes, because Section 20 removed it.
4. How Rule 39 Splits the Credit
The substituted Rule 39 sets out the mechanics, tighter than most teams expect:
- Same month — but the month the credit becomes available. Rule 39(1)(a) requires credit available for distribution in a month to go out that month, through an ISD invoice under Rule 54(1). In Reliance Jio Infocomm Ltd. v. Union of India (Madras High Court, 5 March 2026) the court upheld the rule but held "available for distribution" means credit that has legally become available once the Section 16(2) conditions are met — a July-dated invoice does not by itself force distribution in July.
- Pro-rata on turnover. Credit attributable to more than one recipient goes out as C1 = (t1 ÷ T) × C — t1 that recipient's turnover in the relevant period, T the aggregate turnover of all recipients the credit is attributable to, C the credit distributed. Credit attributable to one recipient goes to it in full.
- Relevant period. The preceding financial year where all recipients had turnover in it, otherwise the last quarter for which turnover figures are available for all of them.
- Eligible and ineligible, separately. Credit blocked under Section 17(5) is still distributed, but reported apart from eligible credit. Distributing it does not make it usable — the recipient reports it and still cannot take it.
- Tax heads convert by geography. Recipient in the ISD's own State or Union territory: central tax stays central tax, State tax stays State tax. Recipient elsewhere: it goes out as integrated tax equal to the aggregate of those amounts.
The reverse-charge route (Rule 39(1A)). An ISD registration cannot pay tax, so it cannot discharge a reverse-charge liability. A registered person with the same PAN and State code as the ISD pays the tax on its own GSTIN, transfers the credit by invoice, credit note or debit note under Rule 54(1A), and the ISD distributes it under Rule 39(1). Get that sequence wrong and the credit is stranded.
5. GSTR-6 and the 13 August 2026 Deadline
The ISD return, Form GSTR-6, is due on the 13th of the following month under Section 39(4) read with Rule 65 — for July 2026, Thursday, 13 August 2026. Two other filings share it: the IFF for QRMP suppliers reporting July B2B invoices, and GSTR-5 for non-resident taxable persons — see our IFF guide for July 2026 and the August 2026 filing calendar.
Whatever the ISD distributes flows into each recipient's GSTR-2B, from where it auto-populates Table 4(A)(4) of that recipient's GSTR-3B. Form GSTR-6A runs the other way — it is the ISD's own read-only statement of inward supplies, drawn from its suppliers' GSTR-1, and is not filed. Miss the GSTR-6 and the credit does not move; it sits on a GSTIN with no output liability to set it against.
| What | Amount | Source |
|---|---|---|
| Late fee, GSTR-6 | ₹25 per day per Act (₹50 per day total) | Notification No. 07/2018-Central Tax dated 23 January 2018, with the parallel SGST/UTGST notifications |
| Late fee cap | ₹5,000 per Act (₹10,000 total) | Section 47(1) |
| Nil return | Compulsory — no separate nil-return fee reduction | GST portal FAQ, Form GSTR-6 |
| Distribution in breach of Section 20 | Minimum ₹10,000, or the ITC wrongly distributed if higher | Section 122(1)(ix) |
| Excess credit distributed | Recovered from the recipient, with interest at 18% per annum | Section 21 read with Section 73, 74 or 74A; Section 50 read with Notification No. 13/2017-Central Tax dated 28 June 2017 |
Note the direction of that penalty: Section 122(1)(ix) sets ₹10,000 as the floor, so where the credit wrongly distributed is larger, the penalty follows the credit. And Section 21 recovers excess distribution from the recipient, not from the ISD that sent it.
Key Takeaways
- ISD registration is compulsory since 1 April 2025 where one office receives third-party invoices for input services used by two or more GSTINs on one PAN — Notification No. 16/2024-Central Tax dated 6 August 2024.
- It is a separate GSTIN under Section 24(viii), not a flag on an existing registration, and it carries input services only — never goods or capital goods.
- Cross-charge is still alive for services one office generates for another, valued per Circular No. 199/11/2023-GST dated 17 July 2023 — but it no longer covers third-party common input services.
- Distribution is pro-rata on turnover in the month the credit becomes available under Section 16(2), with eligible and ineligible shown separately, converting to integrated tax for an out-of-State recipient.
- File July 2026 GSTR-6 by Thursday, 13 August 2026, nil or not. Late fee ₹25 per day per Act (₹50 total), capped at ₹5,000 per Act (₹10,000 total).
Frequently Asked Questions
Is ISD registration mandatory if all my GSTINs are in the same State?
Yes. Two registrations on one PAN are distinct persons under Section 25(4) whether they sit in the same State or different ones. What triggers the requirement is a third-party invoice for input services received for or on behalf of more than one of them, not the State line.
Can an ISD distribute credit on goods or capital goods?
No. Section 2(61) is limited to invoices for the receipt of input services. Credit on goods and capital goods stays with the registration that received them.
Do I have to file a nil GSTR-6 in a month with nothing to distribute?
Yes. The official GST portal FAQ for Form GSTR-6 states that a nil return must be filed where no ITC is available for distribution or none is distributed during the month. Unlike the nil GSTR-7 waiver in Notification No. 23/2024-Central Tax dated 8 October 2024, no nil-return fee reduction has been notified for GSTR-6.
Can the ISD registration pay tax under reverse charge?
No. Under Rule 39(1A), a registered person with the same PAN and State code as the ISD pays the tax on its own GSTIN, transfers the credit to the ISD by an invoice, credit note or debit note under Rule 54(1A), and the ISD distributes it. This covers Section 9(3) and 9(4) of the CGST Act and, from 1 April 2025, Section 5(3) and 5(4) of the IGST Act.
What happens if the ISD distributes more credit than it should have?
Section 21 puts the recovery on the recipient who received the excess, through Section 73, 74 or 74A as applicable, with interest under Section 50 at 18% per annum (Notification No. 13/2017-Central Tax dated 28 June 2017). Distribution in contravention of Section 20 also carries a penalty of ₹10,000 or the amount of credit wrongly distributed, whichever is higher, under Section 122(1)(ix).
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. GST rules are subject to frequent changes through notifications and circulars. Please consult a qualified tax professional or verify the current provisions on the official GST portal (gst.gov.in) before making any compliance decisions.
Have a specific question about ISD registration or ITC distribution? Our GST experts can help → gstconsultancy.com