Section 20: Test ISD registration — Common input services

A company with GST registrations in multiple states faces a threshold question before it distributes any credit: does it need a separate Input Service Distributor registration, or are its inter-unit flows something else entirely? The answer turns on what is being moved — third-party common input services go through the ISD channel; internally generated inter-branch supplies are tested as supplies on their own terms. Conflating the two corrupts both.

The ISD framework sits in Section 20 of the Central Goods and Services Tax Act, 2017, with the distributor defined in Section 2(61) and registration consequences in Section 24 of the same Act. The allocation mechanics that follow registration sit in Rule 39 of the Central Goods and Services Tax Rules, 2017.

The two-channel test

Every rupee moving between a company's own GSTINs must pass through exactly one of two channels. Channel one: the ISD channel, for input services received from third parties at one office and consumed across units — the head-office lease line, the central audit fee, the group software licence. Channel two: the supply channel, for the company's own goods or services flowing between its branches — tested as inter-branch supplies with their own valuation and invoicing. The channel distinction is drawn by the Central Goods and Services Tax Act, 2017, Sections 20 and 2(61).

The failure mode is always the same direction: companies push internal supplies through the ISD channel because distribution feels simpler than supply compliance. Wrongly distributed credit is recoverable from the recipients, so the convenience compounds into multi-unit exposure under the Central Goods and Services Tax Act, 2017, Section 21.

Check your position first

Enter these inputs before deciding anything under the Central Goods and Services Tax Act, 2017, Section 20.

Note: the table above applies the Central Goods and Services Tax Act, 2017, Sections 2(61), 20 and 24 to the company's registration footprint.

Common service versus internal supply

Ask one question per flow: who supplied it? If an outside vendor supplied a service received at the head office and consumed by three branches, it is a common input service and the ISD channel applies. If the head office itself generated the service and pushed it downstream, it is an internal supply tested on supply terms — valuation, invoice, and tax payment — not a distribution under the Central Goods and Services Tax Act, 2017, Section 20.

Document the classification flow by flow, because mixed companies carry both: the same head office can receive vendor services (ISD channel) and render management services to branches (supply channel) in the same month. One channel per flow, evidenced separately, under the Central Goods and Services Tax Act, 2017, Section 20.

The mandatory-ISD change

The registration answer changed from 1 April 2025, when Section 20 was substituted by the Finance Act, 2024 (notified through Notification No. 16/2024-CT dated 06.08.2024). Under the substituted Section 20(1), any office that receives tax invoices towards input services, including reverse-charge invoices under Section 9(3) or 9(4), for or on behalf of distinct persons referred to in Section 25, is required to register as an Input Service Distributor under Section 24(viii) and to distribute that credit. Companies that previously managed common credit informally must now hold the registration and file through it under the Central Goods and Services Tax Act, 2017, Sections 20(1) and 24(viii).

Do not assume the old voluntary position survives for your facts, and do not assume the mandate reaches configurations it does not cover. Read the notification against the company's actual GSTIN footprint — the answer is in the intersection, not in summaries, under the Central Goods and Services Tax Act, 2017, Sections 20 and 24.

Do it in order

• Map the footprint: list every GSTIN under the PAN with its state and activity, since the ISD question only exists across multiple registrations under the Central Goods and Services Tax Act, 2017, Section 20.
• Classify each inter-unit flow as third-party common service or internal supply, flow by flow, keeping the two channels apart under the Central Goods and Services Tax Act, 2017, Sections 2(61) and 20.
• Test the mandate: apply the Section 20(1) test (office receiving input-service invoices for or on behalf of distinct persons) to the mapped footprint under the Central Goods and Services Tax Act, 2017, Sections 20(1) and 25.
• Register the ISD where required, as a distinct registration with its own compliance calendar under the Central Goods and Services Tax Act, 2017, Sections 20 and 24.
• Attribute invoices: map each vendor invoice to its beneficiary units before any allocation arithmetic under the Central Goods and Services Tax Rules, 2017, Rule 39.
• File and distribute monthly: issue distribution documents and file the ISD return on its own deadline, keeping recipients' credits reconcilable under the Central Goods and Services Tax Act, 2017, Section 39(4).

Worked example: ₹1 lakh credit, two branches

Take a company with GSTINs in Maharashtra (head office) and Karnataka (branch). The head office receives a ₹1,00,000 integrated-tax vendor invoice for a software licence consumed 60:40 across the two units. The invoice is received at one office for or on behalf of a distinct person registered under the same PAN, which is the Input Service Distributor position under the Central Goods and Services Tax Act, 2017, Sections 2(61) and 25.

Attribution precedes allocation: confirm the licence is genuinely common (both units use it) rather than head-office-specific with incidental branch access. The 60:40 consumption pattern establishes attribution to both units; it is not the allocation key. Credit attributable to all recipients (here both units, the only two) is distributed pro rata on each recipient's turnover in its State during the relevant period, by the formula C1 = (t1/T) x C, under the Central Goods and Services Tax Rules, 2017, Rule 39(1)(e) and (f) — and only after the channel test places this flow in the ISD channel at all.

Now change one fact: the "service" is actually the head office's own IT support team serving the branch. No vendor, no third-party invoice — the ISD channel does not apply regardless of the 60:40 split. The flow is tested as an inter-branch supply on its own valuation and invoicing terms under the Central Goods and Services Tax Act, 2017.

RCM services need separate handling

Reverse-charge services are inside the ISD channel: Section 20(1) expressly covers invoices for services taxed under Section 9(3) or 9(4), and Section 20(2) covers the credit of tax on such services paid by a distinct person registered in the same State as the Input Service Distributor. The tax-paying leg and the credit-distributing leg must each be mapped before allocation, under the Central Goods and Services Tax Act, 2017, Sections 20(1) and 20(2).

If you get it wrong

Distribution without registration has no legal footing. Wrong-channel distribution exposes recipients to credit recovery with demand consequences. Late ISD returns draw the filing consequences separately. Three failures, three provisions — test registration, channel and calendar independently under the Central Goods and Services Tax Act, 2017, Sections 20, 21, 24 and 39(4).

FAQ

Is ISD registration mandatory now?

From 1 April 2025, for any office that receives input-service invoices for or on behalf of distinct persons — test that against your GSTIN footprint rather than assuming either way, under the Central Goods and Services Tax Act, 2017, Sections 20(1) and 24(viii).

Head office to branch — ISD or cross-charge?

Ask whose supply it is. Third-party common input services go through ISD; the company's own inter-branch supplies are tested as supplies under the Central Goods and Services Tax Act, 2017, Section 20.

Single-state company — any of this apply?

The ISD question barely arises with one GSTIN: there are no recipient units to distribute to. Multi-state footprints and shared-service centres create the issue under the Central Goods and Services Tax Act, 2017, Section 20.

What is the ISD return deadline?

Every person registered as an Input Service Distributor must file a return for every calendar month or part of it, electronically, within thirteen days after the end of the month, under the Central Goods and Services Tax Act, 2017, Section 39(4). The return is FORM GSTR-6 under the Central Goods and Services Tax Rules, 2017, Rule 65. The Commissioner may extend the time limit by notification under Section 39(6), so check for an extension notification for the month in question.

Can one office be both ISD and supplier?

Yes — the same head office can receive vendor services for distribution and render its own services downstream. Run the two channels with separate evidence for each flow under the Central Goods and Services Tax Act, 2017, Section 20.

Sources

• Central Goods and Services Tax Act, 2017, Sections 2(61), 20, 21, 24(viii), 25, 39(4) and 39(6) (definition; distribution; recovery; registration; distinct persons; return; extension)
• Central Goods and Services Tax Rules, 2017, Rule 39 (allocation mechanics) and Rule 65 (FORM GSTR-6)
• The mandatory-ISD framework effective 1 April 2025: section 20 substituted vide Finance Act, 2024 (Notification No. 16/2024-CT) and Rule 39 substituted vide Notification No. 12/2024-CT
• The company's GSTIN footprint, vendor-invoice register, flow-classification sheet and ISD filings

Related reading: https://www.harunraaj.com/services/gst-isd-compliance

What to send for a review

Send the footprint of registrations under the PAN, the inter-unit flow list with vendor invoices, and the consumption shares per unit. The review returns your ISD applicability and registration decision matrix under the Central Goods and Services Tax Act, 2017, Section 20.