This blog provides a clear, step-by-step breakdown of what businesses need to do before the deadline.
Before April 1, 2025, businesses had the option to distribute ITC through multiple GST registrations. However, with Notification No. 16/2024-Central Tax, the government has made ISD registration compulsory to bring uniformity and transparency in ITC claims.
ISD Registration is Now Mandatory – If your business receives invoices for shared services used across multiple GST-registered locations, you must register as an ISD.
Reverse Charge ITC (RCM) Can Now Be Distributed – Earlier, ISDs could not claim ITC on Reverse Charge Mechanism (RCM) transactions. From April 2025 onwards, ITC from RCM invoices can also be distributed among branches.
Strict Compliance – Avoid GST Notices & Penalties – Failure to distribute ITC correctly will result in GST notices, ITC mismatches, and financial liabilities.
IT & Software Companies
Retail Chains & MNCs
Consulting Firms
Manufacturing Companies with Multiple Branches
Let’s take XYZ Ltd., headquartered in Bangalore, with branches in Mumbai, Chennai, and Delhi.
The head office received a software subscription invoice of ₹10 lakh and claimed full ITC at its location.
However, the software was used across multiple branches, creating ITC mismatches during audits.
XYZ Ltd. must register its head office as an ISD.
The software vendor will now issue the invoice to the ISD GSTIN.
The ITC must be distributed among all branches proportionally based on their turnover.
Result: Each branch gets its rightful share of ITC, ensuring compliance and reducing future disputes.
Branch-Specific ITC → Directly allocated to the branch that used the service.
Multi-Branch ITC → Shared among selected branches that used the service.
Common ITC → Used by all branches, requiring proportionate distribution.
To avoid GST mismatches, ITC must be allocated based on turnover ratio:
📊 Example: A company incurs ₹1,00,000 ITC on a shared software license. The branch-wise turnover is:
Chennai: 40% → ITC = ₹40,000
Mumbai: 35% → ITC = ₹35,000
Delhi: 25% → ITC = ₹25,000
ISD cannot distribute ITC on physical goods like machinery, office equipment, or raw materials.
ITC must be claimed by the location where goods are received.
If your company outsources manufacturing, logistics, or services, ISD cannot distribute ITC to them.
Until March 31, 2025, ISD cannot claim ITC on reverse charge transactions.
GST mismatches leading to ITC rejection
Tax notices for wrongful ITC claims
Cash flow issues – Branches will have to pay tax instead of using eligible ITC
Apply via GST REG-01 and declare ISD status.
The GST portal will issue a unique ISD GSTIN.
This GSTIN should be used exclusively for ITC distribution
ISD must issue invoices to each branch for ITC distribution.
Separate ISD invoices are required for CGST, SGST, and IGST.
GSTR-6 must be filed by the 13th of each month.
Late filing attracts a ₹50 per-day penalty.
ISD must match ITC in GSTR-6 with supplier invoices in GSTR-2B.
Scenario | Without ISD Compliance | With ISD Compliance |
|---|---|---|
ITC Claims | Branches cannot claim ITC | Proper allocation across branches |
GST Notices | High risk due to ITC mismatches | No compliance risks |
Tax Audits | Increased scrutiny and penalties | Clear ITC flow |
Reverse Charge ITC | Not claimable before April 2025 | Allowed after April 2025 |
No, ITC on capital goods must be claimed by the receiving branch.
No, ITC must be allocated based on turnover proportion.
Late fees apply, and incorrect filings can lead to ITC mismatches and GST audits.
No, ISD applies only to businesses with multiple GST registrations under the same PAN.
Act Now – Register as an ISD Before April 1, 2025
Educate Vendors – Ensure they raise invoices on the ISD GSTIN
Implement ITC Distribution Systems – Avoid future tax disputes
