The Central Board of Indirect Taxes and Customs (CBIC) on October 26, 2026, has clarified various issues concerning Input Service Distributor (ISD) registration and distribution of input tax credit (ITC) under Sections 2(61) and 20 of the CGST Act, 2017, and Rules 39 and 54(1A) of the CGST Rules, 2017. Separate ISD registrations are required for each registrant receiving input service invoices for distribution to distinct persons, including separate business verticals or places of business where applicable. The ISD must distribute credit only to the relevant recipients and in accordance with the prescribed rules. While recipients are responsible for meeting ITC eligibility conditions under Sections 16 and 17, the ISD is responsible for proper distribution; irregular distribution may attract penalties, and excess credit may be recovered from recipients with interest.
The CBIC further clarified that ITC becomes available for distribution in the month when the ISD determines it to be prima facie eligible and must be distributed in that month through Form GSTR-6, separately identifying eligible and ineligible credit. Recipients are responsible for making applicable ITC reversals under Section 17 read with Rules 38, 42 and 43. Invoices, credit notes and debit notes issued under Rule 54(1A) by a regular registrant having the same PAN and State code as the ISD are merely mechanisms for transferring credit; the amounts do not form part of the issuer’s turnover for the specified GST calculations, and the transferred credit does not qualify as “Net ITC” for refund calculations under Rules 89(4) and 89(5). The transferring registrant is not required to reverse such credit under Section 17; the responsibility for applicable reversals rests with the recipients of the credit.
[Circular No. 260/06/2026-GST]
