Interim Budget 2024: Cos need to register for Input Service Distribution

Companies with branches in multiple cities will now need to register for input service distribution (ISD) to claim input tax credit for services provided by the head office to the branch office, a move expected to reduce disputes significantly.

The interim budget proposed to make this rule mandatory, besides the requirement of a separate registration that allows headquarters of companies to distribute their input tax credit with their branch offices.

Companies will also be required to get ISD registration to claim input tax credit if they are taking common services across branches such as banking, security and advertising.


Input service distribution is essentially a mechanism that allows billing of common input services to one location of the company and permitting it to distribute it to its branches with separate goods and services tax (GST) registration.

Earlier, this was an option for the companies to register for ISD.

The definition of a input service distributor has been amended in the GST (goods and services tax) Law to make ISD registration compulsory if the office of the supplier of goods or services receives tax invoices towards receipt of input services for or on behalf of distinct persons.

The ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services and not on the goods. The move is aimed at implementing the decision taken by the GST Council in its 50th meeting on June 11, 2023.

Compliance Obligations
The industry had sought clarity on the tax treatment for external services such as banking, security and advertising provided by the head office to branch offices.

Experts said that the amendments streamline how input tax credit is managed and distributed, and will enhance the efficiency of the GST system.

"The positive change is that, as this change applies prospectively, it will also protect past cross-charges from disputes," said Saurabh Agarwal, tax partner, EY.

While the move is aimed at enhancing clarity in taxation of such services in the long term, it will require some changes to meet the mandated compliance obligations. "Businesses would need to gear up for making appropriate changes in processes, including technology changes, appropriate billing locations, communications with vendors, tracking of usage of expenses, etc., to ensure compliance with this mandated obligation," said Abhishek Jain, indirect tax head, KPMG.