What is an Input Service Distributor (ISD) Under GST? Explained with Examples

Imagine you have a business with branch offices in cities such as Mumbai or Ahmedabad. Services that are common among branches are billed to your head office. Have you ever thought you could distribute GST credits among branch offices? This is where the GST Input Service Distributor (ISD) comes in, as per Sec. 2(61) of the CGST Act, 2017. It assists you in sharing GST’s input tax credit of common services with your branches without any difficulty.

In this blog, we will discuss the meaning of ISD with a real-life example, how to apply for it, and what documents are required. Stay tuned with us. 

Full Form and Meaning of ISD

ISD full form is Input Service Distributor.

Fundamentally, an ISD is a registered office of your business, which receives invoices of your services and allocates the GST credit of invoices to other branches or units.

The services your head office charges you include:

• Marketing
• Advertising
• Software subscriptions
• Audit fees
• Consulting

But multiple branches enjoy the benefit of those services.

Normally, GST credit would have remained idle at the head office, but with an arrangement of ISD under GST, you can pass that credit to the branches that actually use it. 

Who is the Input Service Distributor Exactly?

An Input Service Distributor is a registered GST office that receives and allocates input tax credit to other GST registered business units of the same business.

One thing is important to note here.

ISD is only applicable to services, and not goods.

Therefore, not applicable in the case your head office purchases laptops or furniture.

However, in case it pays for the services of professionals or cloud software, advertisements, or legal fees, ISD may be applied.

Input Service Distributor under GST

ISD was introduced under the GST law to avoid loss of input tax credit in cases where the expenses are centralised.

In India, several enterprises are centralised on expenses. One office pays the bills. The service is utilised in other offices.

In the absence of ISD, GST credit remains idle at a single point, whereas other branches will be paying excessive taxes.

ISD is the solution to that.

In simple words,

ISD assists in the transfer of GST credit across offices in a legal and transparent way.

Input Service Distributor in GST Example

We shall take an illustrative case of ISD distribution under GST. Realistic and easy.

Example:

Your company has a head office in Mumbai. 

Branch in Pune

Branch in Ahmedabad

The Mumbai head office pays

₹1,00,000 plus GST for digital marketing service.

The GST charge is ₹18,000.

This marketing campaign is beneficial to all three offices.

Now what happens?

Without ISD:

GST credit of ₹18,000 stays in Mumbai

The cities of Pune and Ahmedabad sacrifice.

With ISD:

Mumbai office gets an option to allocate ITC to Pune and Ahmedabad branch office, proportional to or assigned value.

So if;

Pune gets 40%

Ahmedabad gets 40%

Mumbai retains 20%

There is a legal and proper flow of credit.

Documents Required for ISD Registration Under GST

The following documents are required for ISD registration under GST: 

Step-by-Step ISD Registration Process

Here is the step-by-step process to register your company as an Input Service Distributor (ISD) under GST: 

Step 1: Log in to gst.gov.in. Go to New Registration under Services.

Step 2: Select "Taxpayer" then "Input Service Distributor (ISD)".

Step 3: Enter PAN, state, and district. Verify OTP.

Step 4: Fill details: Trade name, constitution.

Step 5: Upload those documents we listed.

Step 6: Verify with EVC or DSC. Submit.

Closing Notes 

We hope that after reading this blog, you understand what an input service distributor under GST is, how to register your company as an ISD, and what documents are required. If your business has branch offices, we highly recommend that you register as an ISD and distribute input tax credits among branch offices so that they can be utilised in a proper manner.

Frequently Asked Questions on Input Service Distributor under GST 

1. What is an input service distributor with an example​? 

An Input Service Distributor refers to a GST registered office that receives invoices of services and distributes the GST credit to its branch offices.

Example: When your head office pays for audit or marketing services that are utilised by all branches, then you can allocate the GST credit to those branches using ISD.

2. How to change the input service distributor in GST? ​

You cannot directly change an existing ISD registration to another office.

3. Does GTA come under the input service distributors​? 

No, GTA does not come under the Input Service Distributor.

4. Is the input service distributor deemed a supplier of services​?

No, an Input Service Distributor is not considered a supplier of services.

5. Is a telecom distributor an input service distributor​? 

No, a telecom distributor is not an Input Service Distributor.

6. Which GST returns are applicable to input service distributors​? 

An Input Service Distributor is required to file GSTR-6.

7. Why does the input service distributor need compulsory registration under GST? 

Since the input service distributor is a facility under GST, without GST registration, you may not be able to take advantage of it.

About the author

Mehul Jagwani

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Mehul is a seasoned content writer with a passion for simplifying complex accounting and GST topics. With a keen interest in entrepreneurship and business management, he specializes in creating informative and engaging content for themunim.com. His goal is to help businesses understand and implement accounting and GST software solutions effectively. When he's not crafting content, Mehul enjoys exploring new places and spending time with his Golden Retriever.