Effective from April 1, 2025, Input Service Distributor (ISD) registration under GST will become mandatory for businesses that receive input service invoices centrally and distribute input tax credit (ITC) to different branches. This change will significantly impact multi-state businesses, making compliance with the ISD framework crucial.
What is an Input Service Distributor (ISD)?
An ISD is an office of a supplier that receives invoices for input services (including those under Reverse Charge Mechanism (RCM)) and distributes the ITC to its branches. The amended definition now explicitly includes RCM transactions and requires ITC distribution only through the ISD mechanism.
Key Changes Effective from April 1, 2025
1. Mandatory ISD Registration – Any business receiving common input service invoices at a central location must register as an ISD.
2. Inclusion of RCM Transactions – ITC on RCM invoices must also be distributed through ISD.
3. Strict ITC Distribution Compliance – The manner of distribution follows Rule 39 of CGST Rules, ensuring proportional allocation based on turnover.
4. Clear Distinction from Cross Charge – Cross-charge remains applicable only for internally generated services within an entity, while ISD applies strictly to third-party service invoices.
Action Plan for Businesses Before March 31, 2025
Review Transactions – Identify invoices requiring ISD registration.
Obtain ISD Registration – Apply for a new ISD GSTIN for compliance.
Update Accounting Systems – Create separate ISD ledgers for input and output ITC.
Educate Finance Teams – Ensure compliance with GSTR-6 filing and ITC distribution methods.
Businesses must act now to transition smoothly into the new regime. Our firm specializes in GST compliance and ISD implementation—get in touch for a seamless transition.