Input Service Distributor: CBIC clarifies registration, timing and reversals
What changed. CBIC has answered seven questions on the Input Service Distributor (ISD) mechanism:
- Each registration that receives input service invoices on behalf of distinct persons must take an ISD registration. More than one ISD registration within a State is not barred. Credit goes only to the units it is attributable to.
- The recipient units must meet the conditions of sections 16 and 17. If the ISD distributes credit wrongly, the ISD is liable to penalty under section 122(1)(ix), and excess credit is recovered from the recipients under section 21.
- Credit becomes "available for distribution" in the month the ISD finds it prima facie eligible after it appears in GSTR-6A. It must be distributed that month, with eligible and ineligible credit shown separately in GSTR-6.
- The ISD distributes the full credit. Reversals under sections 17(1), 17(2) or 17(4) are made by the recipient units.
- Invoices issued under rule 54(1A) to transfer reverse-charge credit to the ISD are not "turnover in State". They are left out when working out the distribution ratio and the adjusted total turnover for refunds. That credit is not "Net ITC" of the issuing unit for refund under rule 89(4) or 89(5), and the issuing unit makes no reversal on it.
Who it affects. Companies with GST registrations in more than one State, or several registrations within a State, that use an ISD.
From when. The circular is dated 26 October 2026.
What to do. - Review monthly GSTR-6 timing and the split of eligible and ineligible credit. - Recompute the turnover used for distribution and refunds without rule 54(1A) invoices. - Make sure recipient units, not the ISD, carry out reversals.
Official source: CBIC Circular No. 260/06/2026-GST dated 26 October 2026
This is general information based on the law as on the date shown, not professional advice. Rules change often; check the current position before acting.