"We just claim the credit at head office": what GST ISD registration actually requires for a multi-branch Pvt Ltd

A Bengaluru-headquartered SaaS company opens a Mumbai sales office and a Hyderabad support centre. Three GSTINs, one PAN. The AWS bill, the group insurance premium, the audit fee and the ad agency retainer all land at the Bengaluru office in the name of the Bengaluru GSTIN. The finance team claims the full input tax credit in Bengaluru's GSTR-3B, because that is where the invoice came. Nobody at the company thinks this is a problem — the credit belongs to the same company, after all.

It is a problem. Since 1 April 2025, that arrangement is not merely inefficient; it is a compliance failure that carries wrongly-availed-credit exposure with interest at 18% and a penalty that can run to the full amount of the credit involved. The Input Service Distributor mechanism stopped being optional, and a very large number of multi-state private limited companies have not noticed.

What the law actually requires

Section 2(61) of the CGST Act, 2017, as substituted by the Finance Act, 2024 (effective 1 April 2025), now defines an Input Service Distributor as an office of the supplier of goods or services which receives tax invoices towards the receipt of input services, including invoices on which tax is payable under reverse charge under Section 9(3) and 9(4), for or on behalf of distinct persons registered under Section 25, and which is liable to distribute the input tax credit in respect of such invoices in the manner provided in Section 20.

The operative change is the word "liable". The pre-2025 definition said an ISD was an office that did distribute credit — it described a choice. The substituted definition says an office receiving common input-service invoices for distinct persons is liable to distribute. That converts a facility into an obligation.

Section 20(1), as substituted, reinforces this: any office of the supplier receiving tax invoices towards the receipt of input services, including reverse-charge invoices, for or on behalf of distinct persons, shall be required to be registered as an Input Service Distributor under clause (viii) of Section 24, and shall distribute the credit in the prescribed manner.

Three things follow from the statutory text and they are the three things companies get wrong.

First, ISD registration is a separate registration, not a flag on your existing one. Section 24(viii) makes ISD registration compulsory irrespective of any turnover threshold. You apply in Form GST REG-01, selecting "Input Service Distributor" in Part B, against the same PAN and the same state as the office receiving the invoices. You will get a distinct GSTIN. Your normal GSTIN in that state continues to exist alongside it. (The older Form ISD-01 nomenclature persists in circulars and commentary; on the GST portal the application is made through REG-01 with the ISD option selected. Verify the current form on the portal before filing.)

Second, ISD applies to input services only. Section 20 does not permit distribution of credit on inputs (goods) or capital goods. A common invoice for laptops purchased centrally cannot be distributed through the ISD route. That gap is handled by cross-charge — a taxable supply between distinct persons under Section 25(4) read with Entry 2 of Schedule I, valued under Rule 28. ISD and cross-charge are not substitutes; they cover different fact patterns and most multi-state companies need both.

Third, distribution is formula-driven, not discretionary. Section 20(2) read with Rule 39 of the CGST Rules, 2017 requires that credit attributable to a single recipient go to that recipient alone; credit attributable to more than one recipient be distributed pro rata on the basis of the turnover in a State/Union Territory of the relevant recipient during the relevant period to the aggregate turnover of all recipients to whom the credit is attributable; and credit attributable to all recipients be distributed across all of them on the same turnover basis. The relevant period is the preceding financial year where turnover figures exist, otherwise the last quarter for which figures are available.

Rule 39 also requires that credit be distributed in the same month it is availed, that IGST be distributed as IGST, and that CGST and SGST be distributed as IGST where the recipient is in a different state — and as CGST and SGST respectively where the recipient is in the same state. Ineligible credit under Section 17(5) must be distributed separately from eligible credit, so that the receiving branch can identify and reverse it.

Distribution happens through an ISD invoice issued under Rule 54(1), which must be clearly marked as an invoice issued only for distribution of input tax credit, and must carry the name, address and GSTIN of the ISD and of the recipient, a consecutive serial number, date, the amount of credit distributed, and the signature of the authorised signatory.

The return is Form GSTR-6, due by the 13th of the month following the tax period, under Rule 65. It is monthly with no exceptions and no composition-style relaxation. The counterparty view is auto-populated to recipients in Form GSTR-6A, and the distributed credit lands in the recipient's GSTR-2B.

Practical implications

The exposure is not theoretical, and it runs in three directions.

Wrongly availed credit at the head office. Where the Bengaluru GSTIN has claimed credit on services consumed by Mumbai and Hyderabad, that credit was never legally available to Bengaluru after 1 April 2025. Recovery proceeds under Section 73 (non-fraud) or Section 74 (fraud, wilful misstatement or suppression). Under Section 73 you face the tax, interest under Section 50(3) at 18% per annum on wrongly availed and utilised credit, and a penalty of 10% of tax or ₹10,000, whichever is higher — reduced to nil if you pay tax and interest before the show cause notice, and to 10%/₹10,000 if paid within 30 days of the notice. Under Section 74 the penalty is 100% of the tax, and the limitation period stretches to five years from the annual return due date rather than three.

Lost credit at the branches. The mirror image is often worse commercially. Mumbai and Hyderabad never received the credit they were entitled to, and by the time an audit surfaces the issue, the Section 16(4) time limit — 30 November following the end of the financial year, or the date of filing the annual return, whichever is earlier — may have closed on the branch's ability to claim it. So the head office repays credit with interest while the branch cannot claim the offsetting amount. The net cost is the full tax, not a wash.

Failure to register at all. Section 122(1)(xi) penalises a person liable to be registered who fails to obtain registration — ₹10,000 or the tax evaded, whichever is higher. Late filing of GSTR-6 attracts late fee under Section 47 at ₹50 per day (₹25 CGST + ₹25 SGST), capped, and it accrues per return per month, so a company that discovers the gap eighteen months in is looking at eighteen separate late-filing exposures.

There is also a reconciliation consequence that shows up before any notice does. GSTR-9C, the reconciliation statement required where turnover exceeds ₹5 crore, reconciles turnover and ITC per the audited financial statements against the returns. A company running centralised credit on common services will show an ITC figure at the head office GSTIN that cannot be reconciled to that GSTIN's own consumption. That mismatch is exactly the kind of variance that generates a demand notice, and it is visible to the department without any field audit.

Step-by-step: what to do

• Run a common-invoice census for the last 18 months. Pull every input-service invoice received at any office where the service benefits more than one GSTIN. The usual candidates: cloud and SaaS subscriptions, group medical insurance, statutory audit and legal fees, advertising and agency retainers, recruitment fees, centralised software licences, corporate travel desk charges, and reverse-charge liabilities on legal services and director sitting fees.
• Split the census into ISD and cross-charge buckets. Input services received centrally for distinct persons go the ISD route. Anything involving goods, capital goods, or genuine services rendered by one office to another (a shared employee, a shared facility) is a cross-charge under Schedule I Entry 2 valued under Rule 28 — a separate mechanism with its own invoice and its own place-of-supply analysis.
• Apply for ISD registration in Form GST REG-01, Part B, selecting "Input Service Distributor". File in the state of the office that receives the invoices. If invoices land at two offices in two states, you need two ISD registrations. Registration is granted under Rule 9; keep the ARN and the approval on file.
• Redirect vendor invoicing to the ISD GSTIN. This is the step companies skip and it is the one that makes everything else work. Update the billing GSTIN with every vendor whose invoice is a common input service. An invoice addressed to the operating GSTIN cannot be distributed through the ISD — the ISD can only distribute credit on invoices addressed to it.
• Build the Rule 39 turnover key and lock it for the year. Compute each recipient GSTIN's state turnover for the preceding financial year as a proportion of the aggregate turnover of the recipients to whom the credit is attributable. Document the source figures. Revisit the key at the start of each financial year, not mid-year.
• Issue Rule 54(1) ISD invoices monthly and file GSTR-6 by the 13th. Do it in the same month the credit is availed — Rule 39 does not permit carrying an undistributed pool forward. Tag Section 17(5) blocked credit separately so the recipient reverses rather than utilises it.
• Reconcile GSTR-6A at each branch against the ISD's GSTR-6 and the branch's GSTR-2B every month. A distribution that does not appear in the branch's 2B did not happen, whatever your books say.
• Where credit was wrongly claimed pre-registration, quantify and pay under Section 73(5) before a notice issues. Voluntary payment of tax with interest under Section 73(5) — reported in Form DRC-03 — extinguishes the penalty entirely. Once the show cause notice lands, the cheapest exit closes.

FAQ

Is ISD registration mandatory even if only one common invoice a year comes in?
The statute is not framed with a de minimis. Section 20(1) says an office receiving such invoices "shall be required to be registered". A single recurring common service — group insurance, for instance — is enough to trigger the requirement on the plain text. Where the volume is genuinely negligible, the practical alternative is to restructure invoicing so vendors bill each GSTIN directly, which removes the trigger rather than ignoring it.

Can we distribute credit on capital goods bought centrally?
No. Section 20 covers input services only. Centrally procured goods or capital goods used across branches must be handled as a supply between distinct persons under Schedule I Entry 2, valued under Rule 28, with a tax invoice from the transferring office. The second proviso to Rule 28 permits the invoice value to be treated as open market value where the recipient is entitled to full input tax credit, which keeps the exercise revenue-neutral in most cases.

Does ISD apply to reverse charge liabilities?
Yes, and this is new. The substituted Section 20(1) expressly covers invoices on which tax is payable under Section 9(3) and 9(4). But the mechanics differ: the ISD cannot pay RCM tax itself. The registered person in the same state as the ISD pays the RCM liability under its normal GSTIN, issues an invoice under Section 31(3)(f), transfers the credit to the ISD, and the ISD then distributes it. Rule 39(1A) sets out this route.

We already cross-charge everything to branches. Does that satisfy Section 20?
No. Cross-charge and ISD are distinct mechanisms with distinct statutory bases, and CBIC's clarification on the point (Circular No. 199/11/2023-GST, issued when ISD was still optional) treated them as alternatives available on the facts. After the Finance Act 2024 substitution, where the fact pattern is receipt of a common input-service invoice on behalf of distinct persons, ISD is mandatory — cross-charge does not discharge that obligation. Continuing to cross-charge a pure input service is a registration failure, not a valid election.

Closing

The Finance Act 2024 change did not add a new tax. It converted an administrative convenience into a registration obligation, and it did so with a one-year runway that most multi-state private limited companies used for something else. If your company has more than one GSTIN under a single PAN and any vendor bills a shared service to one of them, the ISD question is live for you today, and every month it stays unaddressed adds a late fee, a reconciliation variance, and another tranche of branch credit approaching its Section 16(4) expiry.

For a compliance audit of your company, visit pvtltd.co

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See Also

• GST on under-construction flats vs completed property: What the law actually requires
• Claiming ITC on every GST invoice you receive: what Section 17(5) actually blocks
• Assuming an advance ruling protects everyone: what Sections 95–106 of the CGST Act actually say about AAR and AAAR

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