With the implementation of the Goods and Services Tax (GST) in India, the government introduced a streamlined process for availing and distributing Input Tax Credit (ITC). One such provision is the concept of the Input Service Distributor (ISD). It is a vital mechanism for businesses operating across multiple locations to ensure seamless distribution of ITC received on common input services.
The ISD invoice is a specialized document issued to allocate the credit for input services to various branches or units of an organization. Understanding how ISD invoices work is crucial for businesses aiming for effective tax credit utilization and compliance with GST norms.
What is an Input Service Distributor (ISD)?
An Input Service Distributor (ISD) is defined under Section 2(61) of the CGST Act, 2017. It refers to an office of the supplier of goods or services which receives tax invoices towards the receipt of input services and distributes the credit of CGST, SGST, UTGST, or IGST to its branches or units having the same PAN.
Eligibility Criteria for ISD Registration:
The business must have multiple branches/units.
- Only input services (not goods) can be distributed through ISD.
- The ISD must obtain a separate GST registration for this purpose, irrespective of whether it supplies any goods or services.
Examples of ISD Entities:
A head office receiving legal, advertising, or audit services and distributing ITC to branch offices.
A corporate office of a retail chain availing HR services for all its outlets.
Meaning and Purpose of an ISD Invoice
An ISD invoice is a document issued by the Input Service Distributor to distribute the eligible ITC received on input services to various units of the organization.
Purpose of ISD Invoice:
To fairly allocate the ITC on common services like audit, legal consultancy, or HR to the correct branches.
- Ensure compliance with GST rules by preventing wrongful credit claims.
- Maintain transparency in ITC distribution within the company.
How It Differs from a Regular Invoice:
A regular tax invoice is issued for the sale of goods/services, while an ISD invoice is issued for credit distribution only.
- It does not involve any supply of goods or services.
- Components and Format of an ISD Invoice
The ISD invoice must include the following mandatory details:
- Name, address, and GSTIN of the Input Service Distributor
- A unique serial number (consecutive and not repeated during a financial year)
Date of issue
- GSTIN of the recipient unit to which ITC is distributed
- Amount of credit distributed (CGST, SGST, IGST, UTGST)
- Place of supply (especially in case of IGST distribution)
- Signature or digital signature of the ISD
The document must clearly mention "Input Service Distributor Invoice" on the top.
Input Service Distributor Invoice ------------------------------------- ISD Name: ABC Ltd. (Head Office) ISD GSTIN: 27AAAAA1234A1Z5 Invoice No: ISD/2025/001 Date: 01-Aug-2025 Recipient Branch GSTIN: 07AAAAA1234A1Z0 Amount of Credit: CGST – Rs 3,000, SGST – Rs 3,000 Authorized Signature
Legal Provisions and Rules Governing ISD Invoices
Relevant Sections:
- Section 20 of the CGST Act – Covers the manner of distributing credit by an ISD.
- Rule 39 of CGST Rules – Specifies conditions and procedures for distribution.
Key Provisions:
Credit must be distributed only for input services.
Distribution must be done based on the ratio of turnover or usage by the respective unit.
- Separate ISD registration required.
- No credit should be distributed to a unit not eligible to receive it.
- Process of Distributing Input Tax Credit via ISD Invoice
Step-by-Step Workflow:
Head office receives invoice for input services (e.g., legal service).
- Verifies if the credit is eligible under GST law.
- Prepares an ISD invoice to distribute credit to relevant units.
- Files the GSTR-6 return to report the distribution to the GST portal.
- Recipient unit claims the ITC in their GSTR-3B.
Illustrative Example:
ABC Ltd. (HO) receives a consultancy bill worth Rs 1,00,000 (GST @18% = Rs 18,000). It decides to distribute the ITC equally between Branch A and Branch B.
- Branch A receives: CGST – Rs 4,500, SGST – Rs 4,500
- Branch B receives: CGST – Rs 4,500, SGST – Rs 4,500
Total distributed: Rs 18,000
Difference Between ISD and Regular GST Registration
| Basis | ISD Registration | Regular GST Registration |
| Purpose | Distribute ITC | Supply goods/services |
| Supplies | No outward supply | Outward & inward supplies |
| Type of Credit | Only input services | Goods and services |
| Filing | GSTR-6 | GSTR-1, GSTR-3B, etc. |
Note: ISD registration is not mandatory unless the business wants to distribute credit centrally.
Return Filing by ISD
The ISD must file GSTR-6 by the 13th of the next month.
Details to be Furnished in GSTR-6:
- Details of input service invoices received
- Details of ISD invoices issued
- Distribution of ITC to GSTINs of branches
Filing GSTR-6 ensures that the credit distributed gets reflected in the recipient unit’s GSTR-2A.
Common Mistakes to Avoid While Using ISD Mechanism
Distributing ineligible ITC such as blocked credits under Section 17(5)
- Issuing ISD invoice for goods, which is not allowed
- Providing incorrect GSTIN of the receiving branch
- Delayed or non-filing of GSTR-6
- Not maintaining separate ISD registration under GST
Use Cases and Practical Scenarios
Example 1: IT Firm with Multiple Locations
A software company headquartered in Bangalore receives legal and HR services that benefit all its branches. It uses the ISD mechanism to distribute the ITC proportionately across its offices in Delhi, Mumbai, and Chennai.
Example 2: FMCG Company
The head office of an FMCG firm runs national marketing campaigns. The cost is distributed as ITC to various regional offices using ISD invoices.
Benefits of Using ISD Invoices
Centralized credit management
- Accurate and transparent ITC flow
- Prevents misreporting and non-compliance
- Facilitates efficient branch-level accounting
- Improves audit readiness for GST authorities
How VyapaarKHATA Simplifies ISD Invoice Creation and Management
VyapaarKHATA is a user-friendly invoicing and accounting solution designed for Indian businesses. It empowers businesses to create and manage GST & Non-GST invoices, track expenses, and maintain inventory across multiple branches.
ISD Invoice Management Features:
- Create and share ISD invoices effortlessly
- Auto-populate recipient branch details and GSTIN
- Track distributed credits and file GSTR-6 returns seamlessly
- Get reminders for due dates, reducing chances of late filing
- Gain access to insights and reports for ITC utilization
Whether you’re a CA firm managing clients or a business with pan-India operations, VyapaarKHATA is the ideal solution for error-free and automated ISD invoice handling.
The Input Service Distributor (ISD) mechanism under GST is an essential provision for companies operating in multiple states or locations. Proper issuance of ISD invoices ensures that businesses distribute ITC in a compliant and effective manner.
By understanding ISD invoices and integrating tools like VyapaarKHATA, businesses can significantly simplify GST compliance, improve financial control, and maximize credit utilization.