Starting April 2025, the Input Service Distributor (ISD) mechanism under GST has become mandatory for businesses with multiple GST registrations under the same PAN. ISD allows the head office to distribute Input Tax Credit (ITC) from common input services (like audit fees, software licenses) to its branches/subsidiaries based on turnover, as per GST rules.
Key points under GST:
- ISD can distribute credit only for input services, not goods or capital goods.
- Distribution is proportionate to turnover of each branch.
- If the ISD and recipient branch are in different states, credit is passed as IGST; if in the same state, as CGST + SGST.
The current India Localization bundle does not offer native ISD functionality. Even if we set up ISD as a separate nexus, how can we allocate the ITC amount to other nexuses when journal entries do not support a line-level nexus field that impacts accounting?
