🌟 Mandatory ISD Registration Under GST from April 2025: What Every Business Must Know
Starting 1st April 2025, it becomes mandatory under GST for businesses receiving common input service invoices across multiple GSTINs (under the same PAN) to register as an Input Service Distributor (ISD). This marks a significant compliance shift for entities operating in multiple states.
Let’s break down what this means, why it matters, and how you can stay compliant.
🔗 What is an Input Service Distributor (ISD)?
As per Section 2(61) of the CGST Act, an ISD is an office of a taxpayer that receives tax invoices for input services and distributes the Input Tax Credit (ITC) proportionately to its branches/units (with separate GSTINs) under the same PAN.
📄 Real-Life Example:
M/s ABC Ltd. has its head office in Bengaluru and branches in Chennai, Mumbai, and Kolkata. When software maintenance is billed at Bengaluru HO but used by all branches, the ITC must be distributed. Bengaluru becomes the ISD and must distribute the ITC accordingly.
🚀 Key Budget & Legal Updates
✅ 1st Feb 2025 – Union Budget 2025:
Amended Sections 2 and 20 of CGST Act to explicitly include RCM (Section 5(3) & 5(4) of IGST Act) for ITC allocation under ISD.
✅ 6th Aug 2024 – Notification 16/2024:
Made ISD mechanism mandatory by amending Section 2(61) and Section 20 of the CGST Act.
✅ 10th July 2024 – Notification 12/2024:
Amended Rule 39 of CGST Rules, 2017 to prescribe method for ITC allocation by ISDs.
✉️ Eligibility for ISD Registration
You must register as an ISD if:
- You are receiving input service invoices on behalf of multiple GSTINs under one PAN.
- The invoices pertain to common services used across branches.
- You are located at the place where the services are received.
❌ When ISD is NOT Applicable
- No ITC on inputs/capital goods (e.g. raw materials, plant & machinery).
- Cannot distribute ITC to third-party vendors or outsourced units.
➕ Benefits of ISD Mechanism
- ✅ Avoids ITC Mismatches across GSTINs
- ✅ Ensures fair and proportional allocation
- ✅ Simplifies reconciliation
- ✅ Prevents credit loss on shared services
⚠️ Drawbacks / Challenges
- ❌ Requires additional compliance burden (ISD registration, GSTR-6 filing)
- ❌ Not useful for capital goods/input distribution
- ❌ Delays if wrong allocation is made
📚 Step-by-Step: How to Become an ISD
- Apply for separate GSTIN as ISD (not same as normal registration)
- Receive common input service invoices at ISD location
- Issue ISD invoices to other GSTINs under same PAN
- File GSTR-6 monthly return to declare ITC distribution
- Maintain proper records of ITC receipt and allocation
❓ FAQs: ISD Under GST
Q1. Can I voluntarily register as ISD before April 2025? ✅ Yes, and it’s advisable if you already receive common service invoices.
Q2. Can ITC on capital goods be distributed via ISD? ❌ No. Only input services, not capital goods or inputs.
Q3. What if I don’t register and continue as usual? 💡 You may lose ITC benefits and face non-compliance penalties.
Q4. Can a business have multiple ISDs? ✅ Yes, if common services are received in multiple states.