Mandatory Input Service Distributor: the compliance rebuild
From 1 April 2025 this is not a choice. Most vendor masters have not caught up.
Following the amendments to Section 2(61) and Section 20, distribution of input tax credit in respect of common input services procured from third parties, including services on which tax is payable under reverse charge, must be made through the Input Service Distributor mechanism with effect from 1 April 2025. The office receiving such invoices must obtain a separate ISD registration, file GSTR-6, and distribute the credit in the prescribed manner and ratio.
What the mechanism requires
A separate registration as an Input Service Distributor, distinct from the operating registration at the same premises.
Vendors of common input services must invoice the ISD registration. This is the largest implementation problem, because purchase orders and vendor masters carry operating GSTINs.
Distribution through an ISD invoice in the prescribed manner, separately for eligible and ineligible credit, and separately for credit attributable to a single recipient.
Distribution in the ratio of turnover of the recipient in the relevant period to the aggregate turnover of all recipients, computed as prescribed.
Monthly filing of GSTR-6, and reconciliation of the distributed credit to the recipients' GSTR-2B.
Reverse charge, which is the new complexity
The amended mechanism provides for distribution of credit in respect of services on which tax is payable under reverse charge, in the manner prescribed.
Operationally this means the reverse charge liability continues to be discharged by the registration liable to pay it, while the credit is routed for distribution. The self invoice and the payment record must align with the distribution.
Import of services procured centrally is the common case, and it is the one most often mishandled because the liability and the credit sit in different places.
The implementation checklist
Identify every common input service and the office that receives the invoice today.
Obtain the ISD registration and communicate the GSTIN to those vendors in writing, with a cut off date.
Update purchase orders, vendor masters and contract annexures. A vendor who invoices the wrong GSTIN once will do it every month.
Configure the accounting system for ISD invoices and GSTR-6 filing, and for the eligible and ineligible bifurcation.
Reconcile distribution to recipient GSTR-2B monthly for the first two quarters, because errors compound.
What to do on Monday
Inventory common input services and the receiving office for each, before anything else.
Communicate the ISD GSTIN to vendors in writing with a cut off date, and verify the first invoice after it.
Update purchase orders and vendor masters, not just the accounting configuration.
Reconcile distribution to recipient GSTR-2B monthly for the first two quarters.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is ISD required for goods?
No. The mechanism applies to input services. Goods follow the ordinary credit route at the receiving registration.
Do we still need to cross charge?
Yes, for internally generated services supplied by the head office to branches. ISD does not cover those.
What if a vendor invoices the operating GSTIN?
The credit lands in the wrong registration and is not distributed, creating a demand there and a lost credit elsewhere. Fix the vendor master.
How is the distribution ratio computed?
In the ratio of the recipient's turnover to the aggregate turnover of all recipients, computed in the prescribed manner and for the prescribed period.
Can ISD credit be distributed to a recipient with no turnover?
The ratio computation addresses this; check the rule for the treatment where a recipient had no turnover in the relevant period.
In this cluster
- Valuation under Section 15: transaction value and its exceptions
- Rule 28 in practice: related party and distinct person supplies
- Corporate guarantees between group companies: the one percent rule
- Northern Operating Systems: secondment, and the notice that follows every expatriate
- Cross charge of common costs between branches
- Post sale discounts: the agreement requirement and the credit note trail
- Free of cost supplies, warranty replacements and moulds
- Reimbursements and the pure agent exclusion under Rule 33
- Liquidated damages, penalties and notice pay recovery
- Vouchers and gift cards: the amended treatment
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.