Mandatory ISD Registration Under GST from 1st April 2025
Starting from 1st April 2025, a new GST rule will be applied, GST-registered businesses with multiple GSTINs under the same PAN must register as an Input Service Distributor (ISD). This amendment has been introduced to simplify Input Tax Credit (ITC) distribution and enhance compliance. In this article, we will discuss the new ISD provision, registration process, compliance requirements, and key points businesses should keep in mind.
What is the New Update on ISD under GST?
The latest update under GST mandates that, from “1st April 2025”, all businesses with multiple GSTINs under the same PAN must register as an Input Service Distributor (ISD). Until now, ISD registration has been optional, but with this amendment, it has become compulsory. This new GST rule aims to streamline the distribution of Input Tax Credit (ITC), promote uniform compliance, and enable centralised credit management across multiple branches or locations. Businesses must prepare in advance to ensure timely ISD registration and avoid any disruptions in ITC distribution and credit claiming processes.
Consequences of Not Registering as an ISD
Failure to register as an Input Service Distributor (ISD) after April 1, 2025, may lead to several significant consequences for businesses:
- Penalties and Interest: Companies not complying with the mandatory ISD registration may face penalties for incorrect ITC distribution. Excess ITC claims could be recovered from the recipient along with interest under Section 21 of the GST Act.
- GST Audits and Scrutiny: Non-compliance increases the risk of GST audits and scrutiny by tax authorities. Mismatches in ITC claims can trigger investigations, leading to further complications and potential legal issues.
- Reversal of ITC Claims: Incorrect or unregistered ISD operations may result in the reversal of ITC claims. This can significantly impact a company's cash flow and working capital as branches must pay taxes instead of utilising eligible ITC.
- Tax Notices: Businesses may receive tax notices for wrongful ITC claims made at the head office, which could lead to additional financial liabilities and operational disruptions.
- Operational Risks: Without proper ISD registration, businesses will struggle with the allocation of ITC across multiple locations, leading to inefficiencies and potential disputes among branches regarding credit distribution
What is the ISD Registration Process?
An Input Service Distributor (ISD) is a GST-registered taxpayer who collects invoices for services utilised across various branches or units of the business. To register as an Input Service Distributor (ISD) under GST, the taxpayer must select the ISD status in Serial No. 14 of the GST REG-01 form at the time of registration. Only after this declaration can the business start distributing Input Tax Credit (ITC) to its branches.
ISD Returns and Compliance
- The ISD cannot distribute ITC more than the available credit for the relevant month.
- The ISD must file GSTR-6 by the 13th of the following month to report ITC distribution.
- The branches or units receiving the ITC can view the distributed credit in GSTR-6A, which is auto-populated based on supplier returns.
- The recipient branches must claim the ITC in their monthly GSTR-3B returns.
- Additionally, the ISD is not required to file the GSTR-9 annual return, simplifying the compliance process.
Key Takeaway: What Businesses Should Do Now?
As ISD registration becomes mandatory from April 1, 2025, businesses should:
- Evaluate whether they meet ISD criteria and complete registration without delay.
- Implement systems for tracking ITC and distributing it accurately to the right branches.
- Maintain timely GSTR-6 filings each month to avoid late fees and credit mismatches.
- Train internal teams on ISD processes, documentation, and compliance requirements.
By ensuring early compliance:
- Businesses can manage ITC distribution efficiently across locations.
- Avoid unnecessary legal complications or GST notices.
- Make the most of available input tax credits through proper allocation.
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FAQs
1. What is an Input Service Distributor (ISD) under GST? An Input Service Distributor (ISD) is a GST-registered entity that collects invoices for common services used across multiple branches and distributes the Input Tax Credit (ITC) to those branches under the same PAN.
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2. Is ISD registration mandatory under GST from 1st April 2025? Yes, from 1st April 2025, all businesses with multiple GSTINs under the same PAN are required to register as an ISD to distribute ITC centrally and compliantly.
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3. How can I register as an ISD under GST? You can register as an ISD by selecting the ISD option in Serial No. 14 of Form GST REG-01 during registration or by amending existing registration through the GST portal.
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4. What happens if I don’t register as an ISD by April 1, 2025? Failure to register may result in penalties, reversal of ITC, GST audits, tax notices, and disruption in ITC distribution and working capital management.
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5. Can an ISD distribute ITC on inputs and capital goods? No, ISDs can only distribute ITC on input services, not on inputs (physical goods) or capital goods.
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6. What returns must an ISD file? An ISD must file GSTR-6 monthly by the 13th of the following month, reporting ITC distribution to its branches.
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7. Is there an annual return requirement for ISDs? No, ISDs are not required to file the annual GSTR-9 return.
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8. Can an ISD distribute ITC to external vendors or third-party service providers? No, ITC can only be distributed to registered branches under the same PAN; not to external vendors or unrelated third parties
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9. Can ITC on reverse charge mechanism (RCM) transactions be distributed by ISDs?Starting from April 1, 2025, ISDs can distribute ITC on RCM transactions to GST-registered branches of the same entity.
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10. What should businesses do to prepare for mandatory ISD registration? Businesses should evaluate their GST structure, register as ISD well in advance, set up ITC distribution processes, ensure timely GSTR-6 filing, and train their teams for compliance.
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About the Author
DINESH PDinesh Pandiyan is our expert content writer who specialises in business registration, tax regulations, trademark laws, and company compliance. His insightful articles deliver clear and actionable advice, helping businesses easily navigate and overcome complex legal and regulatory challenges.
Updated on: March 20th, 2025
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