Todo sobre los Distribuidores de Servicios de Entrada (ISD) | Enmienda clave a partir del 1 de abril de 2025

The Input Service Distributor (ISD) concept has been part of Service Tax and GST since the initial phase. The concept of ISD applies to entities which are having multiple GST registrations across India and have obtained ITC to common input services in one state, i.e., ITC is claimed in one state. In contrast, the services are used for more than one GST registration of the same PAN. However, it has more significance post-amendment in ISD provisions in 2024 and 2025. Not only Reverse Charge Transactions are brought under ISD purview, rather, the ISD provisions have become mandatory with effect from 1st April 2025.

This article shares a comprehensive analysis of ISD provisions and their implications on the business before and after amendments.

1. What is an Input Service Distributor?

• The concept of Input Service Distributor applies to entities having GST registration across different states and where Input Tax Credit is received by any one branch on behalf of all other branches or more than one branch. Such common ITC is availed generally by the head office or any other specific branch.

• E.g., There is no exhaustive list of services that are specified under ISD provisions. A service is classified as a common Input service depending on its nature such as Advertisement Service, Accounting Service, Audit Service, Insurance Service, Banking service, etc.

• Invoice for Advertisement service is generally raised in the name of the Head office and the entire ITC is also availed by the Head office itself. However, such advertisement expenses benefit the sale of all GST registrations. Accordingly, Input Service Distributor provisions require the Head office to obtain registration as an ISD and distribute such ITC to all beneficiary GSTINs.

• As per Section 2(61) of CGST Act, “ “Input Service Distributor” means an office of the supplier of goods or services or both that receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;”.

• The Definition of ISD got an amendment to vide Finance Act, 2024 dated 15th February 2025 w.e.f. 1st April, 2025.

• Accordingly, as per the definition, any office that receives common Input Services, including services liable to GST under RCM, shall be liable to distribute such ITC as per Section 20.

2. What is the Cross Charge under GST?

• The Cross Charge concept is also used for the distribution of common Input Tax Credits.

• Under this scenario, the head office or office receiving common Input services raises the invoices to the other branches for which such service is utilized and charges the GST on such invoice.

• Such invoice is declared as a “B2B” supply in GSTR-1 and accordingly, the output tax liability is discharged on such supply and the counter branch is entitled to claim the ITC of such invoice.

3. ISD Vs Cross Charge

• The key difference between Input Service Distributor and Cross Charge is, that ISD is used for distribution of common Input Tax Services received from third party.

• Whereas, Cross Charge can be used for the distribution of common Input services

received from the third party or internally generated goods or services. E.g. The software is developed by the head office and the same is utilized by other branches. In such a case, the head office shall raise the invoice on other branches for software development services.

• The Key Question arises is whether the Head office is allowed to distribute ITC through cross charge or the same is required to be done through ISD only.

• In this context, the CBIC issued a detailed clarification vide Circular No. 199/11/2023-GST  dated 17th July 2023.

• As per Point No. 1 of the circular, Concerning common input services procured from a third party, the distribution of the ITC can be made by the HO to a BO through Ithe SD mechanism or through raising tax invoices under section 31 of the CGST Act, i.e., throug cross charge.

4. Amendment with effect from 1st April, 2025

• So far, the registered persons are allowed to distribute the ITC of Common Input Services through ISD or Cross charge, as clarified vide Circular No. 199/11/2023-GST  dated 17th July 2023. The circular was issued post-clarification in the 50th GST Council meeting.

• However, in the same meeting, the GST Council recommended an amendment in GST Law to make ISD provisions mandatory prospectively.

• As per the recommendation of the GST Council, the definition of Input Service Distributor was amended through Finance Act, 2024 to make the distribution of common Input Tax Credits mandatorily through ISD. Further, the Service on which GST is payable under RCM under section 9(4) and (5) of CGST Act, was also covered under ISD provisions.

• Further, Vide Finance Bill 2025, the definition of ISD was amended to include RCM supplies under the IGST Act.

• Therefore, w.e.f. 1st April 2025, the registered person is mandatorily required to distribute ITC through the ISD mechanism only including invoices covered under RCM under the CGST Act and IGST Act.

5. Compliances as Input Service Distributor

Any taxable person who is required to distribute Input Tax Credit as ISD w.e.f. 1st April 2025, is required to act proactively to have complied:

5.1 GST registration as ISD

• As per Section 20(1) of the CGST Act, any person who is liable to distribute Common Input Tax Credit as ISD is required to register as an Input Service distributor under Section 24(viii) of the CGST Act. GSTIN shall be separate as ISD from regular GSTIN.

• The taxpayer has to make sure that all Common ITC is received on the GSTIN of ISD for further distribution.

5.2 Raise ISD Invoice

For distribution of Common ITC, the taxpayer is required to raise an ISD Invoice. As per Rule 54(1) of CGST Rules, the Invoice shall contain the following details:

1. name, address, and GSTIN of Input Service Distributor
2. Consecutive serial number not exceeding 16 characters, in one or multiple series, containing alphabets or numerals or special characters or any combination thereof
3. date of issuance of an  invoice
4. name, address, and GSTIN of the recipient branch
5. amount of the credit distributed
6. signature or digital signature of the ISD or his authorized representative

5.3 Filing of return

• The ISD-registered taxpayer is required to file an ISD return in Form GSTR-6 by the 13th of the following month.
• The return shall disclose the amount of ITC received against common Input Service, as auto-populated in GSTR-6A, and ITC distributed by the ISD to the branch offices.
• ITC distribution can’t exceed the ITC received by ISD.
• ITC in GSTR-6A shall auto-populate based on the invoice uploaded by the respective supplier in GSTR-1.
• Further, the ITC available for distribution shall be distributed in the same month.

5.4 Key points to be considered while distributing ITC

• ITC of common input service shall be distributed to the person to whom such ITC pertains;
• The amount of eligible ITC and ineligible ITC (as per Section 17(5) of CGST Act) shall be distributed separately;
• ITC on account of CGST, SGST, and IGST shall be distributed separately;
• IGST Credit shall be distributed as IGST to all recipients;
• CGST & SGST credit shall be distributed as:
  • CGST & SGST, if the recipient is located in the same state;
  • IGST, if the recipient is located in another state

• ISD shall issue a credit note as per Rule 54(1) where distributed credit is required to be reduced due to any reason. Distributed ITC shall be reduced in the same in which it was distributed;
• An additional amount of ITC shall be distributed through Debit Note;
• ITC is to be distributed to even those recipients who are engaged in making exempt supply or are otherwise not registered under GST Law.

5.5 Manner of Distribution of Input Tax Credit

De conformidad con la Regla 39 de las Reglas CGST, leída junto con la Sección 20 de la Ley CGST, el ITC se distribuirá de la siguiente manera a partir del 1 de abril de 2025:

• El ITC se distribuirá proporcionalmente según el volumen de negocios del estado receptor durante el período pertinente.
• El ITC a distribuir se calculará mediante la siguiente fórmula:

C 1 = (t 1 / T) x C

Donde,

"C": Crédito a distribuir,

"t1": volumen de negocios del receptor durante el período pertinente;

"T" es el agregado del volumen de negocios de todos los receptores a quienes se debe distribuir

el ITC común durante el período pertinente.

• El período pertinente significará:
  • Si el receptor tuvo volumen de negocios durante el año financiero anterior, entonces dicho año financiero anterior;
  • Si algunos o todos los receptores no tuvieron volumen de negocios en el año financiero anterior, entonces el último trimestre para el cual estén disponibles los detalles de dicho volumen de negocios de todos los receptores, anterior al mes durante el cual se debe distribuir el crédito;

• El volumen de negocios, con respecto a cualquier persona registrada dedicada al suministro de bienes sujetos a impuestos, así como de bienes no sujetos a impuestos bajo esta Ley, significa el valor del volumen de negocios, reducido por el monto de cualquier derecho o impuesto recaudado bajo las entradas 84 y 92A de la Lista I del Séptimo Anexo de la Constitución y las entradas 51 y 54 de la Lista II de dicho Anexo.

5.6 Ejemplo de distribución de ITC:

• El Distribuidor de Servicios de Entrada (ISD) está registrado en el estado de Delhi
• ITC común: 70.000 INR bajo IGST y 140.000 INR bajo CGST y SGST;
• Receptores: 4 GSTIN ubicados en Delhi, Bengala Occidental, Maharashtra y Punjab
• Volumen de negocios de los receptores:
  • Delhi: 20 Lakhs
  • Bengala Occidental: 50 Lakhs
  • Maharashtra: 30 Lakhs
  • Punjab: 40 Lakhs

• En tal caso, se distribuirá el siguiente ITC:

‍

‍

5.7 Procedimiento para la distribución de ITC bajo RCM

• Cuando cualquier servicio de entrada común esté cubierto por el mecanismo de carga inversa (RCM), en ese caso, el registro de GST regular en el estado donde está registrado el ISD deberá pagar el GST sobre dicho servicio a través de RCM al presentar el GSTR-3B.
• Luego, dicho ITC se transferirá al ISD mediante la emisión de una factura, según lo especificado en la Regla 54(1A) de las Reglas CGST;
• Ahora, el ISD aprovechará y distribuirá este ITC al receptor o receptores de la misma manera de distribución discutida anteriormente para las facturas de carga directa.
• La disposición de distribución de ITC bajo RCM será aplicable a partir del 1 de abril de 2025.

6. Puntos de acción clave para las empresas

Considerando el período limitado para la implementación de las disposiciones obligatorias del Distribuidor de Servicios de Entrada, las empresas deben reaccionar de manera proactiva ante dicha enmienda de GST y tomar todas las medidas necesarias para la distribución fluida de los servicios de entrada comunes a través de las disposiciones de ISD.

Los siguientes son los puntos de acción clave para el año fiscal 2025-26:

1. Obtener el registro de GST como ISD: Los contribuyentes deben distribuir el ITC común como Distribuidor de Servicios de Entrada. Para este propósito, el contribuyente debe obtener un registro de GST por separado como ISD en el estado desde donde se distribuirá el ITC. Considerando el tiempo que toma el proceso para otorgar el registro de GST, los contribuyentes deben solicitar el registro de GST lo antes posible.

2. Incorporar cambios en el software: El ISD debe generar facturas para la distribución del ITC y esto debe contabilizarse con precisión en los libros contables. Por lo tanto, los contribuyentes deben realizar las modificaciones necesarias en el software para generar una factura adecuada.

3. Calcule el volumen de negocios de todas las sucursales por adelantado: El volumen de negocios es la base para la distribución del ITC a las sucursales. Por lo tanto, los contribuyentes deben calcular el volumen de negocios de todas las sucursales con antelación para la correcta implementación de las disposiciones del ISD.

4. Actualice el GSTIN del ISD con todos los proveedores: Se debe informar a todos los proveedores con antelación sobre el GSTIN del Distribuidor de Servicios de Entrada (ISD) para que el ITC común se reciba en dicho GSTIN y se distribuya desde allí.

7. Sanciones por incumplimiento de las disposiciones del ISD

• Según la Sección 21, cuando el ISD distribuye el crédito contraviniendo las disposiciones de la Ley CGST, lo que resulta en una distribución excesiva de ITC, dicho crédito distribuido en exceso se recuperará de los destinatarios junto con los intereses, según lo especificado en la Sección 73, 74 o 74A de la Ley CGST.

• Además, según la Sección 122(1)(ix) de la Ley CGST, cuando una persona sujeta a impuestos toma o distribuye ITC contraviniendo la sección 20, dicha persona estará obligada a pagar la mayor de las siguientes cantidades:
  • una sanción de 10.000 INR; o
  • una cantidad equivalente al crédito fiscal de entrada distribuido de forma irregular.

• Cuando cualquier persona sujeta a impuestos esté obligada a registrarse como Distribuidor de Servicios de Entrada pero no lo haga, se le impondrá una sanción de 10.000 INR.

Conclusion:

Anteriormente, las disposiciones del ISD podían evitarse emitiendo la factura mediante un mecanismo de cargo cruzado, sin necesidad de un registro separado como Distribuidor de Servicios de Entrada. Sin embargo, a partir del 1 de abril de 2025, las disposiciones del ISD son obligatorias y todas las entidades que reciban ITC común deben obtener un registro de GST separado como Distribuidores de Servicios de Entrada y distribuir el ITC común mediante la presentación del formulario GSTR-6.