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Indirect Tax Laws and Practice · Input Tax Credit

Input Service Distributor and Rule 39 Distribution of Credit

Updated 11 October 2026 · Fact-checked

An Input Service Distributor (ISD) is an office that receives invoices for input services used by several distinct persons with the same PAN and passes on the credit. Under Rule 39, you distribute it in the same month, by turnover ratio C1 = (t1 ÷ T) × C, and issue an ISD invoice.

Understand Input Service Distributor and Distribution Procedure under Rule 39

A company often buys common services at its head office, such as audit, advertising or software. The branches or units in different States use these services. Each has its own GST registration. The head office cannot simply keep the credit, so GST provides a way to pass it on.

Under Section 20, an office of the supplier that receives tax invoices for input services for or on behalf of distinct persons must register as an Input Service Distributor and distribute the credit on those invoices. The Act refers to the registration under clause (viii) of section 24. A recipient of credit is a supplier of goods or services or both having the same PAN as the ISD.

The ISD does not make a supply. It only passes credit through a document. Rule 39 sets the procedure. Credit available in a month must be distributed in the same month, and details go in FORM GSTR-6. You can never distribute more than the credit available.

The split depends on attribution. If the service is attributable to one recipient, that recipient alone gets the credit. If it is attributable to several recipients, they share it pro rata on turnover. If it is attributable to all recipients, all share it pro rata on turnover. Turnover means turnover in the recipient's State or Union territory during the relevant period. Recipients who make exempt supplies or are unregistered are still included in the ratio.

The ISD also distributes eligible and ineligible credit separately. Ineligible credit is credit not allowed under section 17(5) or otherwise. The tax type also matters. IGST goes as IGST to every recipient. CGST and SGST/UTGST go as CGST and SGST/UTGST to a recipient in the ISD's own State, and as IGST to a recipient in another State.

Key rules to remember

Credit share of recipient R1
C1 = (t1 ÷ T) × C
C = credit to be distributed; t1 = turnover of R1 in the relevant period; T = total turnover of all recipients to whom the service is attributable.
Timing and cap
Distribute in the same month; amount distributed ≤ credit available
Report in FORM GSTR-6. Distribution cannot exceed the credit available.
Relevant period
Preceding financial year; else last quarter with turnover details of all recipients
The preceding financial year applies if the recipients have turnover in their States or Union territories in it. If some or all do not, use the last quarter for which turnover details of all recipients are available, before the month of distribution.
Nature of credit distributed
IGST → IGST to all; CGST+SGST/UTGST → CGST+SGST/UTGST (same State) or IGST (other State)
For a recipient in another State, the IGST amount equals the aggregate of CGST and SGST/UTGST credit that qualifies for that recipient.
Documents
ISD invoice for distribution; ISD credit note for reduction
The ISD invoice must clearly state that it is issued only for distribution of input tax credit. Rule 54(1) governs these documents.
Credit note from supplier
Apportion reduction in the ratio of the original distribution
Reduce it from the amount distributed in the month the credit note is included in GSTR-6. If the amount would turn negative, add it to the recipient's output tax liability.

How to solve Input Service Distributor and Distribution Procedure under Rule 39 questions

Use this order for any question on ISD distribution. It keeps the attribution, turnover and tax-type decisions separate.

  1. 1Identify the credit available for the month, split into IGST, CGST and SGST/UTGST, and into eligible and ineligible parts.
  2. 2For each invoice, decide attribution: one recipient only, some recipients, or all recipients.
  3. 3Take only the recipients to whom the service is attributable. Do not leave out exempt or unregistered recipients.
  4. 4Fix the relevant period and take each recipient's turnover in its own State or Union territory for that period.
  5. 5Compute each share with C1 = (t1 ÷ T) × C. Do it separately for eligible and ineligible credit and for each tax type.
  6. 6Decide the tax head for each recipient: IGST stays IGST; CGST and SGST go as CGST and SGST in the ISD's State, and as IGST to other States.
  7. 7Check that the total distributed equals the credit available and is distributed in the same month. Mention the ISD invoice and GSTR-6.
  8. 8State the final table of credit by recipient.

Quickest way: Turnover ratio shortcut

When to use it: Use it for numerical questions with a few recipients and one common service.

  1. Add the turnovers of the relevant recipients to get T.
  2. Write each ratio as t1 ÷ T and simplify the fractions.
  3. Multiply each ratio by C for eligible credit, then separately for ineligible credit.
  4. Mark the head: same State as the ISD gives CGST and SGST; other State gives IGST.
  5. Add up the shares to confirm they equal C.

Common mistakes in Input Service Distributor and Distribution Procedure under Rule 39

  • Excluding exempt or unregistered recipients from the turnover ratio

    Students think credit can go only to taxable registered units.

    Fix: Rule 39(1)(f) includes recipients making exempt supplies or not registered, whenever the service is attributable to them.

  • Using total company turnover instead of each recipient's State turnover

    The word turnover is read loosely.

    Fix: Use turnover in the State or Union territory of each recipient during the relevant period.

  • Mixing eligible and ineligible credit in one calculation

    Students compute one combined figure.

    Fix: Distribute ineligible credit and eligible credit separately, as clause (g) requires.

  • Distributing CGST as CGST to a recipient in another State

    The tax head rule is forgotten.

    Fix: A recipient in another State gets IGST equal to the CGST plus SGST/UTGST credit qualifying for it. Only same-State recipients get CGST and SGST.

  • Carrying credit forward to a later month

    Students treat it like ordinary ITC.

    Fix: Credit available in a month must be distributed in that same month, reported in GSTR-6.

  • Giving a credit note reduction to the wrong ratio

    The current turnover ratio is used.

    Fix: Apportion the reduction in the same ratio as the original invoice was distributed.

Worked examples

Example 1

Sundaram Foods Ltd has an ISD office in Chennai (Tamil Nadu). In a month it has eligible common input service credit of ₹1,20,000 CGST and ₹1,20,000 SGST, attributable to all recipients. Recipients with the same PAN and their turnover in their own States in the relevant period: Unit A, Tamil Nadu, ₹3 crore; Unit B, Karnataka, ₹2 crore; Unit C, Tamil Nadu, ₹5 crore. Distribute the credit.

Show the solution
  1. The service is attributable to all recipients. T = 3 + 2 + 5 = ₹10 crore.
  2. Unit A share = 3 ÷ 10 = 30%. Unit B = 20%. Unit C = 50%.
  3. Total credit C = ₹1,20,000 + ₹1,20,000 = ₹2,40,000 (the CGST and SGST components are each shared in the same ratios).
  4. Unit A (same State): CGST 30% × 1,20,000 = ₹36,000 and SGST ₹36,000.
  5. Unit C (same State): CGST 50% × 1,20,000 = ₹60,000 and SGST ₹60,000.
  6. Unit B (other State): CGST share 20% × 1,20,000 = ₹24,000 plus SGST share ₹24,000. It is distributed as IGST of ₹48,000.
  7. Check: 36,000 + 36,000 + 60,000 + 60,000 + 48,000 = ₹2,40,000.

Answer: Unit A: CGST ₹36,000 and SGST ₹36,000. Unit C: CGST ₹60,000 and SGST ₹60,000. Unit B: IGST ₹48,000. Total ₹2,40,000, distributed in the same month through an ISD invoice and shown in GSTR-6.

Example 2

Kaveri Textiles Ltd's ISD in Pune has IGST credit on an advertisement service of ₹90,000, attributable only to its Pune unit (₹4 crore turnover) and Surat unit (₹2 crore turnover). Its Delhi unit (₹6 crore turnover) does not benefit from it. It also has IGST credit of ₹30,000 on a service that is ineligible under section 17(5). That is attributable to the same two units. How is each credit distributed?

Show the solution
  1. Recipients for both services: Pune and Surat only. T = 4 + 2 = ₹6 crore. Delhi is excluded because the services are not attributable to it.
  2. Pune ratio = 4 ÷ 6 = 2/3. Surat ratio = 2 ÷ 6 = 1/3.
  3. Eligible credit ₹90,000: Pune = 2/3 × 90,000 = ₹60,000. Surat = 1/3 × 90,000 = ₹30,000.
  4. Ineligible credit ₹30,000: Pune = ₹20,000. Surat = ₹10,000. This is distributed separately.
  5. IGST is distributed as IGST to every recipient.
  6. Check: 60,000 + 30,000 = 90,000 and 20,000 + 10,000 = 30,000.

Answer: Eligible IGST credit: Pune ₹60,000 and Surat ₹30,000. Ineligible IGST credit: Pune ₹20,000 and Surat ₹10,000 (distributed separately). Delhi gets nothing.

Exam tips

  • In numerical questions, first read which recipients the service is attributable to. This decides T.
  • Show the ratio, the formula and a total check. Examiners look for the method.
  • Write the tax head explicitly: IGST, or CGST and SGST for the same State, IGST for other States.
  • In theory answers, list the conditions: same-month distribution, cap on credit, ISD invoice, ISD credit note and GSTR-6.
  • Mention the PAN link. A recipient of credit has the same PAN as the ISD.

Practice questions from Input Tax Credit

Input Service Distributor and Distribution Procedure under Rule 39 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Input Service Distributor and Distribution Procedure under Rule 39: frequently asked questions

Who is an Input Service Distributor under GST?

It is an office of a supplier that receives tax invoices for input services on behalf of distinct persons with the same PAN. Section 20 requires it to register as an ISD and distribute the credit on those invoices.

What is the formula for distributing credit under Rule 39?

C1 = (t1 ÷ T) × C. Here t1 is the recipient's turnover in the relevant period, T is the aggregate turnover of all recipients to whom the service is attributable, and C is the credit to be distributed.

Can an ISD distribute credit in a later month?

No. Rule 39 says the credit available in a month must be distributed in the same month. The details are furnished in FORM GSTR-6.

How is credit distributed to a recipient in another State?

The CGST and SGST/UTGST credit qualifying for that recipient is distributed as integrated tax. A recipient in the ISD's own State gets CGST and SGST/UTGST, while IGST credit is always distributed as IGST.