Many businesses use the Input Service Distributor mechanism to simplify GST compliance. It works well for organisations with multiple GST registrations, where a head office pays for common expenses such as legal services or software subscriptions. Through ISD, the input tax credit on these shared costs can be passed on to the branches that actually use the services, making credit allocation more straightforward and organised.
Legislation within the Finance Act 2024 changes the ISD position from optional to mandatory starting 1 April 2025 under Notification No. 16/2024-Central Tax. Firms must maintain a unique ISD profile in addition to their primary GST accounts to stay compliant.
This change ensures that input tax credits do not remain unused at the central office level. As credit distribution now needs to reflect actual usage, maintaining proper GST software discipline becomes essential. In this guide, we walk through the registration timelines and explain how the mechanism works in practice, helping you manage input tax credits more effectively.
When is ISD registration mandatory for your business?
If a central office receives invoices for shared services that are used by multiple GST registrations under the same PAN, ISD registration becomes necessary. This is common in organisations where the head office deals with vendors, while actual operations are spread across different states.
Services covered under the Reverse Charge Mechanism and received at the head office also fall under the ISD framework when they relate to different registrations of the same business. This is important because the updated ISD rules clearly include services on which tax is payable under reverse charge.
ISD registration does not depend on turnover limits. Once an office acts as an Input Service Distributor by receiving and passing on service-related tax credits, registration becomes mandatory, regardless of the value of outward supplies.
How to apply for ISD registration in India?
ISD registration is completed through the GST portal and results in a separate GSTIN that is used only for distributing input tax credit. This registration does not replace any existing GSTINs. It works alongside the active registrations that are used for outward supplies.
To begin the process, log in to the GST portal and go to the registration section under the Services tab. Choose the option for a new registration and enter the business details linked to the existing PAN.
The application is submitted using Form GST REG-01. While filling the form, select “Input Service Distributor” as the registration type. This step ensures that the GSTIN issued is meant only for credit distribution and not for regular sales or purchases.
You will need to upload documents related to the principal place of business and identity details of authorised signatories. These typically include address proof such as a rent agreement or utility bill. The portal reviews these documents as part of the verification process.
Once the application is submitted, an Application Reference Number is generated. This number can be used to track the status of the application. After verification by the department, the ISD GSTIN is issued if everything is found to be in order.
Role of GST Software in ISD Compliance
ISD compliance often becomes difficult when common service invoices are booked with inconsistent references or when credit allocation relies on informal internal notes. Since the entire process depends on accurate invoice capture and consistent distribution logic, clean data handling becomes critical.
In a structured setup, common service invoices are recorded under the ISD GSTIN using a uniform booking pattern each month. Maintaining this consistency reduces manual allocation errors, as invoice tagging remains standardised and distribution entries are easier to trace during reviews. Solutions like TallyPrime support this discipline by keeping invoice records, credit distribution, and references aligned across periods.
Rule 39 requires input tax credit to be distributed on a pro-rata basis, with GSTR-6 acting as the primary compliance return for ISD activity. Regular matching of GSTR-6 with GSTR-6A remains an important control, as the inward invoice trail must align with the credit distributed before it is treated as settled.
During monthly closing, the emphasis stays on structured recording, clear reconciliation views, and maintaining audit-ready documentation rather than relying on ad-hoc spreadsheets. This approach keeps ISD records organised and easier to present during internal audits or departmental reviews where invoice-to-distribution traceability is examined.
Conclusion
ISD has moved into the category of structural GST compliance for multi-GSTIN businesses because common service ITC now needs a defined distribution route from 1 April 2025 under the notified change framework. The main operational benefit involves smoother credit flow directly to the consuming state GSTIN, assuming records and distribution methods stay organised.
ISD compliance within TallyPrime relies on precise data entry and automated reporting tools. By embedding the regulations into the bookkeeping, the software ensures credit movement stays consistent and legally secure.
