The Institute of Chartered Accountants of India (ICAI), through its GST & Indirect Taxes Committee, has released the second edition of the “Handbook on Input Service Distributor (ISD) under GST”, offering an updated and practical guide for professionals and businesses navigating credit distribution under India’s Goods and Services Tax regime. The revised edition, published in September 2025, including the major amendments introduced by the Finance Acts of 2024 and 2025.
The handbook underscores the critical role of the Input Service Distributor (ISD) mechanism in ensuring the equitable and efficient allocation of Input Tax Credit (ITC) among various registrations of a business entity. It highlights how the ISD system—originally introduced under the Service Tax regime—has been institutionalized under GST to streamline the distribution of input service credits within multi-state organizations.
A key update featured in this edition is the mandatory implementation of the ISD mechanism from 1st April 2025, replacing the earlier flexibility that allowed businesses to choose between ISD and cross-charging methods. The Finance Act, 2024 amended Section 20 of the CGST Act to state that ISD “shall distribute” credit, ensuring uniformity and transparency in credit allocation. Further, amendments in 2025 expanded the ISD definition to explicitly cover reverse charge transactions under both CGST and IGST Acts, resolving long-standing ambiguities.
The publication provides detailed guidance on:
- Registration procedures and compliance requirements for ISDs.
- Distribution methodology under Section 20 and Rule 39 of the CGST Rules, including turnover-based ITC allocation formulas.
- Treatment of eligible and ineligible credits, and management of debit and credit notes.
- Return filing procedures in Form GSTR-6 and reconciliation of ITC distribution.
- Consequences and penalties for incorrect or excess credit distribution under Section 21 and Section 122 of the CGST Act.
In his foreword, ICAI President praised the Committee’s efforts in producing a comprehensive and practitioner-friendly resource. The handbook, he noted, strengthens GST compliance frameworks and enhances professional competency across the accounting community.
With the GST Council’s ongoing push for uniform application of credit mechanisms, ICAI’s updated handbook serves as a crucial reference for tax professionals, corporate accountants, and policymakers, bridging the gap between statutory provisions and practical implementation.
The Handbook can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2025/10/Handbook-on-Input-Service-Distributor-under-GST.pdf
