Mandatory ISD Registration Under GST — From 1 April 2025

The Input Service Distributor (ISD) mechanism lets a central office receive invoices for input services and distribute the input tax credit (ITC) to multiple branches or registrations under the same PAN. Previously optional, ISD registration becomes mandatory from 1 April 2025 where common input services are received for multiple registrations. The aim is to bring uniformity, transparency and a robust audit trail for ITC distribution and eliminate inconsistent cross-charge practices.

• ISD registration is mandatory for any entity receiving input services that are used by multiple GST registrations under the same PAN.
• Distribution of ITC for common input services must be done through ISD invoices; cross-charge cannot be used for ITC distribution going forward.
• Entities must file GSTR-6 (ISD return) monthly to report credits received and distributed.
• Vendors providing common services should bill to the ISD GSTIN to ensure clean ITC flow.

Practical impact: head offices can no longer rely on internal cross-charges to pass credit — systems and vendor invoices must reflect the ISD workflow.

• Misuse of cross-charges: Cross-charge led to inconsistent ITC allocation and valuation disputes.
• Need for uniform practice: Different industries adopted differing approaches causing audit conflicts.
• Traceability & audit convenience: ISD invoices create a clear chain from vendor → ISD → recipient unit.
• Prevent double taxation: ISD focuses purely on credit distribution, reducing valuation disputes tied to cross-supply accounting.

Mandatory ISD registration applies where an entity: (a) operates multiple GST registrations under the same PAN, and (b) receives common input services (ERP, ERP licences, cloud, centralised audit/consulting, HR/payroll outsourcing, marketing, IT support) that benefit more than one registration. Most medium and large enterprises, multi-state businesses and groups with centralised procurement will be in scope.

1. Vendor invoices: Vendors bill common services to the ISD GSTIN (or HO GSTIN acting as ISD).
2. Credit in ISD ledger: ISD claims ITC and records credit in its ISD ledger.
3. ISD invoices: ISD issues ISD invoices (credit distribution notes) to recipient registrations indicating tax distributed.
4. Recipient claim: Recipient registrations claim ITC based on ISD invoices in their returns.

Allocation basis may be turnover ratio, consumption basis, headcount or any robust internal measure — maintain documented methodology for audit.

• Centralised IT services: ERP licenses, cloud subscriptions, hosting.
• Corporate services: statutory audit, legal, consulting and corporate communication.
• Shared operations: HR/payroll outsourcing, facility management, security services.
• Marketing & brand costs contracted centrally and consumed across registrations.
• Group contracts with pan-India coverage where multiple registrations benefit.

• Obtain a separate ISD GST registration (if not already held) and use ISD GSTIN on vendor invoices for common services.
• File GSTR-6 monthly to report credits received and credits distributed to units.
• Maintain ISD invoice numbering and keep supporting documentation for allocation basis and calculations.
• Reverse or adjust wrongly distributed credits using ISD credit/debit notes and update records promptly.

• Transparent, auditable chain of ITC distribution.
• Reduced disputes related to valuation and cross-charge treatments.
• Consistency across industries and clearer administrative guidance.
• Cleaner financial allocation across units and improved internal reporting.
• Simpler, faster audits and lower compliance friction in multi-state operations.

• ERP and accounting changes are required to create, process and reconcile ISD invoices.
• Vendors need to be instructed to bill to ISD GSTINs — large-scale vendor communication is necessary.
• Defining and documenting a fair allocation methodology (turnover vs consumption) can be time-consuming.
• Possible short-term cashflow mismatch during transition as systems align and credits flow through ISD.
• Training and change management for finance, procurement and shared-service teams are essential.

Phase 1: Identification & assessment

• Identify all centrally procured services and list vendors and contracts.
• Map current cross-charge practices and quantify annual ITC impacted.

Phase 2: Registration & system changes

• Apply for ISD registration(s) and update vendor master records.
• Modify ERP to record ISD credits, issue ISD invoices and reconcile GSTR-6.

Phase 3: Vendor & process alignment

• Notify vendors to bill centrally to the ISD GSTIN for common services post-deadline.
• Draft SOPs for ITC allocation, ISD invoice issuance and monthly reconciliation.

Phase 4: Training & audit readiness

• Train procurement, AP and tax teams; maintain allocation methodology documentation for auditors.
• Run mock reconciliations and close cross-charge backlogs up to March 2025.

Mandatory ISD registration from 1 April 2025 is a major structural reform intended to bring transparency and standardisation to ITC distribution across multi-location businesses. Early planning—vendor communication, ISD registration, ERP changes, allocation policies and staff training—will ensure a smooth transition. Organisations that prepare proactively will minimise disruptions, improve internal reporting and reduce future disputes with tax authorities.