A company with registrations in several States often receives one invoice for a service used by all of them — an audit, software, advertising. Section 20 requires the office receiving such invoices to register as an Input Service Distributor and pass the credit on to the registrations that actually use the service.
Key points
- From 01.04.2025, under section 20 of the CGST Act, 2017 as substituted by the Finance Act, 2024, an office receiving invoices for input services on behalf of distinct persons must register as an Input Service Distributor and distribute the credit.
- The Finance Act, 2025 extended the scheme, also from 01.04.2025, to services on which IGST is paid on reverse charge under section 5(3) or (4) of the IGST Act.
- Credit is distributed in the manner prescribed in Rule 39 — broadly, to the recipients using the service, in proportion to turnover — by an ISD invoice reported in Form GSTR-6.
- Before 01.04.2025 the ISD route was optional; common services could alternatively be cross-charged between distinct persons.
The provisions
20(1)–(3)Distribution by an Input Service Distributor
Statutory text
(1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9 2[of this Act or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017], for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.
(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 2[of this Act or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017,] paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.
(3) The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be prescribed.]
1. Substituted (w.e.f. 01.04.2025) by s. 12 of The Finance (No. 8) Act, 2024.
2. Inserted (w.e.f. 01.04.2025) by s. 125 of The Finance (No. 7) Act, 2025.
Statutory text as published on the CBIC tax information portal, as on 03.10.2026; the numbered notes record each amendment. Official source
Common questions
- Is ISD registration mandatory?
- From 01.04.2025, yes — an office receiving invoices for common input services for distinct persons must register as an ISD and distribute the credit (section 20 CGST as substituted by the Finance Act, 2024).
- Can reverse-charge credit be distributed through an ISD?
- Yes. Section 20 covers services taxed on reverse charge under section 9(3)/(4) CGST and, from 01.04.2025, section 5(3)/(4) IGST.
Commentary and case notes checked against the judgments and CBIC sources on 04.10.2026.
What it means
Sub-section (1) defines who must distribute: the office receiving invoices for input services — including services taxed on reverse charge under section 9(3) or (4) and, from the 2025 amendment, IGST reverse charge under section 5(3) or (4) of the IGST Act — for or on behalf of distinct persons under section 25. Sub-section (2) makes distribution mandatory, subject to the conditions in Rule 39: credit goes only to the recipients to whom the service is attributable, in proportion to their turnover where it relates to more than one. Sub-section (3): central tax is distributed as central or integrated tax, and integrated tax as integrated or central tax, depending on whether the recipient is in the same State.
The 2024 substitution changed the old permissive "may distribute" to an obligation. It responded to the question whether common services must be cross-charged; CBIC Circular 199/11/2023-GST had treated both routes as available. From 01.04.2025, where the conditions in sub-section (1) are met, the ISD route applies.