Last reviewed: 25 September 2026. If your business has more than one GSTIN on the same PAN — a Maharashtra head office with branches or plants in other States, or even multiple registrations within the State — the era of choosing between ISD and cross-charge is over. Input Service Distributor registration became mandatory from 1 April 2025, and the Finance Act, 2025 amendment to sections 20(1) and 20(2), which expressly pulls IGST reverse-charge services into the net, also applies from 1 April 2025 according to the CBIC-published text of section 20. FY 2025-26 was the first full year under the mandate — which means the GSTR-9/9C and audit cycle now under way is the first one that will test it. Here is the working position: what goes through ISD, what legitimately remains cross-charge, the Rule 39 arithmetic, and the traps.
What changed, and when
| Period | Position | Authority |
|---|---|---|
| Till 31 March 2025 | ISD was optional; businesses could cross-charge common services between GSTINs. CBIC itself accepted this and proposed a prospective mandate. | Circular No. 199/11/2023-GST dated 17 July 2023 |
| From 1 April 2025 | ISD registration and distribution became mandatory for common input services, including services under CGST/SGST reverse charge — with Rule 39 substituted (pro-rata formula, rule 39(1A) transfer for RCM credit). | Finance Act, 2024 amending sections 2(61) and 20; Notification No. 16/2024-Central Tax dated 6 August 2024 |
| From 1 April 2025 | Sections 20(1) and (2) further amended to expressly cover services taxed under IGST reverse charge — sections 5(3)/5(4) of the IGST Act (e.g. imported services for common use). The CBIC text of section 20 shows this insertion with effect from 1 April 2025. | Finance Act, 2025 |
ISD vs cross-charge: which route for which cost
| Nature of cost | Correct route | Why |
|---|---|---|
| Third-party services used by multiple GSTINs — software licences, statutory audit fees, legal retainers, insurance, cloud and SaaS subscriptions, marketing, consultancy | ISD (mandatory) | Section 20 read with section 2(61): the receiving office must distribute this credit via ISD invoices and GSTR-6. |
| Reverse-charge services procured for common use — legal services, import of services, sponsorship | ISD, via rule 39(1A) | The regular GSTIN pays the RCM tax, transfers credit to the ISD registration by invoice, and the ISD distributes it. IGST-RCM is expressly covered from 1 April 2025. |
| Internally generated services — HO finance, HR, IT or management teams supporting branches | Cross-charge (tax invoice between distinct persons, Schedule I) | ISD covers only third-party invoices; your own establishment’s services to another GSTIN remain a Schedule I supply. |
| Goods (inputs or capital goods) moved or procured centrally | Normal supply invoicing — never ISD | ISD distributes credit of input services only. |
Imported common services: the foreign-group angle
Indian subsidiaries of foreign groups are the businesses most exposed here. Group SaaS, cloud hosting, ERP licences and shared-service charges billed by a foreign parent or vendor are imports of services taxed under IGST reverse charge. Where the Indian entity has more than one GSTIN, the registration that pays the IGST-RCM must transfer that credit to the ISD under rule 39(1A) for distribution, rather than keeping it or cross-charging it. We set up this loop, along with the transfer pricing and FEMA side of group recharges, through our foreign subsidiary accounting, CFO and FEMA service.
Cross-charge valuation after Circular 199/11/2023
Two positions from the circular continue to matter for what remains of cross-charge. First, where the recipient GSTIN is entitled to full ITC, the value declared on the invoice is deemed to be the open market value under the second proviso to rule 28 — and if no invoice is issued, the value may be deemed nil. Second, the salary cost of head-office employees need not be included in the value of internally generated services cross-charged to branches. For exempt-supply-heavy recipients (who cannot take full ITC), valuation discipline still matters — document the cost basis. Related-person valuation questions also arise on GST on a director's personal guarantee.
How ISD distribution works: the Rule 39 arithmetic
Credit is distributed pro rata on turnover: each recipient GSTIN gets C × (t1 ÷ T), where C is the credit to distribute, t1 is the recipient’s turnover in the relevant preceding period, and T is the aggregate turnover of all recipients to whom the service relates. Both eligible and ineligible credit must be distributed (separately shown — the recipient deals with the ineligible portion), distribution happens in the same month, and excess distribution is corrected through ISD credit notes. Tax-type mapping: IGST is always distributed as IGST; CGST/SGST go as CGST/SGST to a recipient in the same State and as IGST to a recipient in another State. Distribution rides on an ISD invoice under rule 54(1), and the credit lands in each branch’s GSTR-2B through the ISD’s GSTR-6 — reconcile it the same way you reconcile vendor credit in our GSTR-3B ITC hard-locking guide.
Worked example. A Thane head office holds the ISD registration. The group’s statutory audit fee is billed to the ISD GSTIN: ₹5,00,000 + ₹90,000 IGST. Turnover of the three operating GSTINs in the preceding financial year: Maharashtra ₹6 crore, Gujarat ₹3 crore, Karnataka ₹1 crore (T = ₹10 crore). GSTR-6 for the month distributes: Maharashtra ₹54,000 (60%), Gujarat ₹27,000 (30%), Karnataka ₹9,000 (10%) — all as IGST, each on its own ISD invoice, appearing in each unit’s GSTR-2B.
Getting operational: a working checklist
- Take the ISD registration — a separate application on the same PAN (it coexists with your regular GSTINs).
- Fix the vendor master: every common-service vendor must bill the ISD GSTIN, not a branch. This single purchase-order change is where most of the compliance actually happens.
- Classify your P&L: tag each recurring service as branch-specific (bill that branch directly), common third-party (ISD), or internally generated (cross-charge).
- Set the RCM loop: regular GSTIN pays RCM tax → rule 39(1A) transfer invoice to ISD → ISD distributes — covering IGST-RCM items like imported services as well.
- File GSTR-6 by the 13th monthly, nil months included, and circulate the distribution working to branches so their GSTR-2B reconciliations tie out.
- Keep the audit trail: ISD invoices (rule 54), the turnover base used, and credit notes for corrections — this is what a scrutiny or the GSTR-9/9C cycle will ask for.
Non-compliance exposure
- Wrong or excess distribution: recovered from the recipient with interest under section 21, with penalty under section 122(1)(ix) of ₹10,000 or the credit irregularly distributed, whichever is higher.
- Credit stranded at HO: where vendors keep billing the head office’s regular GSTIN, branches lose credit that was never routed to them — a real cost, not just a compliance gap.
- GSTR-6 delay: late fee under section 47(1) of ₹100 per day under each of the CGST and SGST Acts, capped at ₹5,000 under each Act, and branches’ credit is deferred because it only arrives via your filed return.
Common mistakes we see
- Continuing to cross-charge third-party services (audit fees, software) between GSTINs after 1 April 2025.
- Vendors still billing branch GSTINs for common services because nobody updated the PO template.
- Distributing only eligible credit and ignoring the ineligible portion, breaking the Rule 39 trail.
- Missing nil GSTR-6 months and accumulating daily late fees quietly.
- Routing goods or capital-goods credit through ISD — it is a services-only mechanism.
- Leaving IGST-RCM credit on imported services outside the ISD loop, on the mistaken view that it was covered only from 1 April 2026. It has been covered since 1 April 2025, so FY 2025-26 distributions should be checked before the GSTR-9 cycle closes.
Frequently asked questions
Is ISD registration mandatory now?
Yes. From 1 April 2025, any office receiving tax invoices for input services procured for or on behalf of its other GSTINs on the same PAN must obtain a separate ISD registration and distribute that credit through GSTR-6. There is no turnover threshold.
Is cross-charge finished, then?
No. Cross-charge continues for internally generated services — work done by one registration’s own staff for another, like HO teams supporting branches. What has ended is using cross-charge for third-party common input services; those must now flow through ISD.
What is the due date and late fee for GSTR-6?
GSTR-6 is due by the 13th of the following month, and a return must be filed even for a nil month. GSTR-6 is a return under section 39, so section 47(1) of the CGST Act applies: ₹100 per day under the CGST Act and ₹100 per day under the SGST Act (₹200 per day in all), capped at ₹5,000 under each Act. We are not aware of any late-fee reduction notification covering GSTR-6.
How are reverse-charge services handled under ISD?
The regular GSTIN pays the RCM tax and transfers the credit to the ISD registration by invoice under rule 39(1A), and the ISD then distributes it. Sections 20(1) and 20(2), as amended by the Finance Act, 2025 with effect from 1 April 2025, expressly cover services taxed under IGST reverse charge (sections 5(3) and 5(4) of the IGST Act) as well as CGST/SGST reverse charge.
How is the credit split between branches?
Pro rata on turnover: each recipient gets C × (t1 ÷ T), where t1 is that GSTIN’s turnover in the relevant preceding period and T is the combined turnover of all recipients to whom the service relates. IGST is distributed as IGST; CGST/SGST go as-is to a same-State recipient and as IGST to another State.
What is the exposure if credit is distributed wrongly?
Excess or wrong distribution is recovered from the recipient with interest under section 21, and section 122(1)(ix) prescribes a penalty of ₹10,000 or the credit distributed irregularly, whichever is higher. Vendors billing branch GSTINs instead of the ISD is the most common way businesses trip.
We assist with ISD registration, the vendor-master and PO changes, the Rule 39 distribution working, monthly GSTR-6 filing and an ISD-plus-cross-charge SOP your team can run.
GST Registration (incl. ISD) GST IMS & ITC SOP Setup Schedule a callDisclaimer: This article is for general guidance only and is not a substitute for advice on your specific facts and the latest law. Positions verified as on 25 September 2026 — sections 2(61), 20, 21, 47 and 122 CGST Act (section 20 as published by CBIC); Finance Act, 2024 with Notification No. 16/2024-Central Tax dated 06.08.2024; Finance Act, 2025 (IGST-RCM inclusion w.e.f. 01.04.2025); rules 39 and 54(1) CGST Rules; Circular No. 199/11/2023-GST dated 17.07.2023. Please consult before acting.