Skip to content

Direct and Indirect Taxation · Input Tax Credit

Input Service Distributor and Distribution of Credit under Rule 39

Updated 10 October 2026 · Fact-checked

An Input Service Distributor (ISD) is an office that receives tax invoices for input services on behalf of distinct persons and passes the credit to them. Under Rule 39, you split each credit pro rata on recipient turnover: C1 = (t1 ÷ T) × C. You do this separately for eligible and ineligible credit, and for each tax.

Understand Input Service Distributor and Distribution of Credit

A company often buys common services at its head office, such as audit, advertising or software. The units that benefit may be in different States, each with its own GST registration. The head office cannot simply keep the credit. It has to pass the credit to the units that gain from the service.

That is the job of the Input Service Distributor (ISD). Under section 20 of the CGST Act, an office that receives tax invoices for input services, for or on behalf of distinct persons, must be registered as an ISD and must distribute the input tax credit on those invoices. Rule 39 of the CGST Rules says how.

A recipient of credit is a supplier of goods or services or both having the same PAN as the ISD. So the ISD and its recipients are units of the same PAN holder, such as branches or factories. Each unit is a recipient, whether or not it is registered, and even if it makes exempt supplies.

The basic idea is simple. Credit that belongs to one unit goes only to that unit. Credit shared by several units is split in proportion to their turnover. Turnover is taken for the relevant period, which is the preceding financial year. If some recipients had no turnover in that year, it is the last quarter before the distribution month for which turnover details of all recipients are available.

The tax type then changes depending on location. Integrated tax is passed on as integrated tax. Central and State tax go on as central and State tax to a unit in the ISD's own State, but as integrated tax to a unit in another State. The ISD issues an ISD invoice to pass on the credit. Whenever credit is reduced later, it issues an ISD credit note.

Key rules to remember

Distribution formula (Rule 39(1)(f))
C1 = (t1 ÷ T) × C
C = credit to distribute; t1 = turnover of recipient R1 in the relevant period; T = total turnover of all recipients to whom the service is attributable. For credit attributable to all recipients, T covers all recipients operational in the current year.
Timing and cap
Credit available in a month is distributed in the same month; distributed credit ≤ credit available
Details are furnished in FORM GSTR-6.
Attribution rules
One recipient: only to that recipient. More than one: pro rata among them. All recipients: pro rata among all.
Pro rata is on turnover in the recipient's State or Union territory during the relevant period.
Separate distribution
Eligible and ineligible credit are distributed separately. Central, State/UT and integrated tax are distributed separately.
Ineligible credit means credit ineligible under section 17(5) or otherwise.
Type of tax distributed
IGST → IGST to every recipient. CGST + SGST/UTGST → same State: CGST and SGST/UTGST. Other State: IGST (sum of the CGST and SGST/UTGST share).
The tax type depends on where the recipient is located relative to the ISD.
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.
Credit notes received by the ISD
Reduction apportioned in the same ratio as the original distribution
Reduce it from credit distributed in the month the credit note is included in GSTR-6. If the amount turns negative, add it to the recipient's output tax liability.

How to solve Input Service Distributor and Distribution of Credit questions

Use this order for any numerical or theory question on ISD distribution.

  1. 1List the credit received in the month, split into IGST, CGST and SGST/UTGST, and into eligible and ineligible.
  2. 2Decide attribution of each service: one recipient, a group of recipients, or all recipients.
  3. 3Identify the relevant period and take each recipient's turnover for it. Exclude recipients not covered by the attribution.
  4. 4Compute T, the total turnover of the recipients that share the credit.
  5. 5Apply C1 = (t1 ÷ T) × C to each recipient, separately for each tax and for eligible and ineligible credit.
  6. 6Decide the tax type: IGST stays IGST. CGST and SGST go as CGST and SGST to a unit in the ISD's State, and as IGST to a unit in another State.
  7. 7Check that the total distributed equals the credit available, and state that the ISD invoice is issued and the details go in GSTR-6 for the same month.

Quickest way: Share-of-turnover method

When to use it: Use it for numerical questions where several units share one credit and time is short.

  1. Add the turnovers to get T.
  2. Write each unit's share as a fraction of T and simplify it, for example 2:3:5 becomes 20%, 30% and 50%.
  3. Multiply each share by C for each tax head.
  4. Tick the location: a unit in the ISD's State gets CGST and SGST. A unit elsewhere gets IGST for the same amount.
  5. Add up the shares to check they equal C.

Common mistakes in Input Service Distributor and Distribution of Credit

  • Including units that do not benefit from the service in T.

    Students use total turnover of all units every time.

    Fix: Read the attribution. For clause (d), T covers only the recipients to whom the service is attributable.

  • Mixing eligible and ineligible credit in one calculation.

    Both are shown as one GST amount on the invoice.

    Fix: Rule 39(1)(g) needs separate distribution. Compute them in two lines.

  • Giving CGST and SGST to a unit in another State.

    Students copy the tax heads from the invoice.

    Fix: For a recipient in another State, the credit is distributed as integrated tax, equal to the CGST plus SGST/UTGST share.

  • Using current-year turnover.

    It feels more up to date.

    Fix: Use the relevant period: the preceding financial year, or the last available quarter if some recipients had no turnover in that year.

  • Excluding a unit because it makes exempt supplies or is unregistered.

    Students think only taxable registered units earn credit.

    Fix: Rule 39(1)(f) says the formula applies to all recipients whether registered or not, including those making exempt supplies.

  • Carrying credit into the next month.

    Students treat the ISD like a normal ledger.

    Fix: Credit available in a month must be distributed in the same month, and the cap is the credit available.

Worked examples

Example 1

Tamil Textiles Ltd has its ISD in Chennai (Tamil Nadu). In a month it receives an audit service invoice for all its units, carrying CGST ₹90,000 and SGST ₹90,000, all eligible. The units and their turnover in the relevant period are: Chennai ₹4 crore, Coimbatore (Tamil Nadu) ₹2 crore, Pune (Maharashtra) ₹4 crore. Distribute the credit.

Show the solution
  1. The service is attributable to all recipients, so T = 4 + 2 + 4 = ₹10 crore.
  2. Shares: Chennai 4/10, Coimbatore 2/10, Pune 4/10.
  3. CGST to distribute: Chennai = 4/10 × 90,000 = ₹36,000. Coimbatore = 2/10 × 90,000 = ₹18,000. Pune = 4/10 × 90,000 = ₹36,000.
  4. SGST is the same amounts: ₹36,000, ₹18,000 and ₹36,000.
  5. Chennai and Coimbatore are in the ISD's State: they get CGST and SGST as computed.
  6. Pune is in another State: it gets IGST equal to its CGST share plus SGST share = 36,000 + 36,000 = ₹72,000.
  7. Check: 36,000 + 36,000 + 18,000 + 18,000 + 72,000 = ₹1,80,000, which equals the credit available.

Answer: Chennai: CGST ₹36,000 and SGST ₹36,000. Coimbatore: CGST ₹18,000 and SGST ₹18,000. Pune: IGST ₹72,000. Total ₹1,80,000.

Example 2

An ISD in Delhi receives in a month: (i) an IGST of ₹60,000 on a common advertising service for all units, and (ii) an input service invoice with IGST ₹30,000 attributable only to the Jaipur unit. A part of (i), ₹12,000, is ineligible under section 17(5). Units and turnover for the relevant period: Delhi ₹3 crore, Jaipur ₹2 crore, Noida ₹5 crore. Distribute the credit.

Show the solution
  1. Item (ii) is attributable to one recipient, so all ₹30,000 goes only to Jaipur as IGST.
  2. Item (i): eligible IGST = 60,000 − 12,000 = ₹48,000. Ineligible IGST = ₹12,000. Distribute them separately.
  3. T = 3 + 2 + 5 = ₹10 crore. Shares: Delhi 30%, Jaipur 20%, Noida 50%.
  4. Eligible IGST: Delhi = 30% × 48,000 = ₹14,400. Jaipur = 20% × 48,000 = ₹9,600. Noida = 50% × 48,000 = ₹24,000.
  5. Ineligible IGST: Delhi = ₹3,600. Jaipur = ₹2,400. Noida = ₹6,000.
  6. IGST is always distributed as IGST, whatever the location.
  7. Jaipur's eligible IGST total = 9,600 + 30,000 = ₹39,600.
  8. Check eligible: 14,400 + 39,600 + 24,000 = ₹78,000 = 48,000 + 30,000. Ineligible: 3,600 + 2,400 + 6,000 = ₹12,000.

Answer: Eligible IGST: Delhi ₹14,400, Jaipur ₹39,600, Noida ₹24,000. Ineligible IGST: Delhi ₹3,600, Jaipur ₹2,400, Noida ₹6,000.

Exam tips

  • In theory answers, quote the three anchors: same-month distribution, distribution not exceeding credit available, and a separate ISD invoice that says it is only for distributing credit.
  • In numerical answers, show T, each fraction and the tax-head conversion. Step marks come from these lines.
  • Always show eligible and ineligible credit in separate columns, and verify the totals at the end.
  • Check where each unit is located before writing CGST, SGST or IGST. This is the most common place to lose marks.
  • For MCQs, remember that the ISD credit note reduces credit already distributed, and the reduction is spread in the original ratio.

Practice questions from Input Tax Credit

Input Service Distributor and Distribution of Credit 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 of Credit: frequently asked questions

What 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 and distributes the credit to them. Section 20 of the CGST Act requires such an office to register as an ISD and distribute the credit.

Who are the recipients of ISD credit?

A recipient of credit is a supplier of goods or services or both having the same PAN as the ISD. Registered, unregistered and exempt-supply units are all covered by the formula.

How is credit distributed to a unit in another State?

Integrated tax goes as integrated tax. Central tax and State or Union territory tax that qualify for a unit in another State go as integrated tax, equal to the sum of its CGST and SGST/UTGST share.

What must an ISD invoice show?

It is issued under rule 54(1) and must clearly state that it is issued only for distribution of input tax credit. A credit note is issued if distributed credit is later reduced.

Which turnover is used in the formula?

Turnover in the relevant period, in each recipient's State or Union territory. That is the preceding financial year, or the last quarter with turnover details of all recipients if some had no turnover in that year.