Concept of Distinct Person and Input Service Distributor (ISD) under GST
Distinct Person under GST
Under Section 25(4) and 25(5) of the CGST Act, 2017, establishments of a person having different GST registrations in different states or union territories, or within the same state for different business verticals (if separate registration is taken), are considered distinct persons for the purpose of GST.
Example:
A company “XYZ Pvt. Ltd.” has:
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A registered office in Mumbai (Maharashtra)
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A branch in Bangalore (Karnataka)
Even though it’s the same legal entity, these are treated as distinct persons under GST because they have separate GSTINs in different states.
Implications:
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Supply between distinct persons (even without consideration) is treated as supply under Schedule I of the CGST Act.
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Such supplies are taxable and require the issuance of a tax invoice.
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Inter-branch transfers (goods/services) across states are liable to IGST.
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Input Tax Credit (ITC) can be claimed on such tax paid, subject to eligibility.
Input Service Distributor (ISD)
As per Section 2(61) of the CGST Act, an Input Service Distributor (ISD) is an office of the supplier of goods or services or both which receives tax invoices for input services and distributes the credit of CGST, SGST, IGST, or UTGST to other units of the same organization having the same PAN.
ISD is only allowed to distribute credit of input services, not goods.
Example:
A company “ABC Ltd.” has:
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Head Office in Delhi (registered as ISD)
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Branches in Gujarat, Tamil Nadu, and Kolkata
If a common input service (e.g., advertisement, consulting) is billed to the head office in Delhi, the input tax credit (ITC) of that service is distributed by the ISD to the concerned branches based on their turnover ratio.
Key Features of ISD:
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Separate registration required under GST as ISD (even if already registered as a regular taxpayer).
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Only input services (not goods or capital goods) can be distributed.
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Distribution should be made via ISD invoice.
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Credit is distributed based on the turnover of recipient units in a State/UT.
Tax Distribution Rules:
Tax Type Received by ISD | Distributed to Branch in Same State | Distributed to Branch in Different State |
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CGST + SGST | CGST + SGST | IGST |
IGST | IGST | IGST |
Benefits of ISD:
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Centralized management of common service invoices.
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Proper allocation of credit to the correct unit.
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Prevents accumulation of ITC at one location.
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Ensures smooth compliance and reduces tax leakage.