Distribute common input service ITC across branches. Head office to units, pro-rata by turnover. MANDATORY from April 2025. GSTR-6 monthly. Multi-state businesses.
ISD = Input Service Distributor. MECHANISM to distribute COMMON INPUT SERVICE ITC across multiple branches/units. EXAMPLE: Head office pays for company-wide software, audit, advertising. ISD distributes that ITC to branches that benefit. KEY: (1) HEAD OFFICE registers as ISD. (2) Receives common service invoices. (3) DISTRIBUTES ITC via ISD invoice to branches. (4) GSTR-6 monthly return. (5) MANDATORY from April 2025 (was optional). For multi-state/multi-branch businesses.
ISD MANDATORY (April 2025 change): (1) PREVIOUSLY optional (cross-charge alternative). (2) NOW MANDATORY for distributing common input service ITC across GSTINs. (3) BUSINESSES with multiple registrations (states/branches) must use ISD. (4) Common services (audit, legal, software, marketing) ITC distributed via ISD. (5) Separate ISD GSTIN required. IMPACT: (1) Compliance change for multi-state businesses. (2) Restructure ITC flow. STRATEGIC: multi-branch businesses register ISD + adapt processes by April 2025.
ISD DISTRIBUTION: (1) PRO-RATA based on turnover of recipient units. (2) ITC distributed to units that CONSUMED the service. (3) CGST/SGST/IGST distribution rules. (4) SAME-STATE: CGST+SGST. CROSS-STATE: IGST. (5) ISD INVOICE issued to each unit. (6) GSTR-6 filed by ISD (by 13th of next month). (7) Recipient units claim distributed ITC. EXAMPLE: ₹1L software ITC, 3 branches (turnover 50:30:20). Distribute ₹50K:₹30K:₹20K. STRATEGIC: accurate turnover-based distribution critical.
ISD vs CROSS-CHARGE: (1) ISD: distributes ITC of THIRD-PARTY services (vendor invoices to head office). (2) CROSS-CHARGE: head office provides INTERNAL services to branches (own employees, infrastructure) — raises invoice. (3) BOTH may apply. (4) Post-April 2025: ISD mandatory for third-party common service ITC. (5) Cross-charge for internal service value. STRATEGIC: distinguish third-party service ITC (ISD) from internal service provision (cross-charge). Both have compliance. CONSULT GST CA for multi-entity structures.
ISD STRATEGY: (1) MULTI-STATE/branch businesses: register ISD (mandatory April 2025). (2) IDENTIFY common input services (audit, software, marketing, legal). (3) ROUTE vendor invoices to ISD GSTIN. (4) DISTRIBUTE ITC pro-rata (turnover-based). (5) FILE GSTR-6 monthly. (6) RECIPIENT units claim ITC. (7) MAINTAIN distribution records. (8) DISTINGUISH from cross-charge (internal services). (9) RESTRUCTURE by April 2025 deadline. (10) ENGAGE GST CA for ISD setup + ongoing compliance. STRATEGIC: critical for large multi-branch businesses to optimize ITC + comply. Penalties for non-compliance.