GST rules for Input Service Distributors: registration, credit and refunds
CBIC circular 260/06/2026-GST says each business unit passing GST credit through an Input Service Distributor needs its own registration.
- Document
- Circulars CGST 260/06/2026-GST
- Dated
- 26 Oct 2026
- Effective
- Not stated (circular dated 26.10.2026)
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Each branch or division receiving shared service bills needs its own ISD registration.
- The ISD must pass credit only to the unit it is meant for.
- The unit receiving the credit, not the ISD, must meet the eligibility conditions.
- The ISD must share credit in the month it finds it eligible.
- Certain same-PAN invoices no longer count as turnover for GST refund calculations.
In short
Circular 260/06/2026-GST, issued by the Central Board of Indirect Taxes and Customs (CBIC) on 26 October 2026, explains how GST rules on the Input Service Distributor (ISD) apply. An ISD is an office that receives bills for services used by other business units and passes on the GST paid (the input tax credit) to them. The circular was issued because trade and industry asked for clarity on these points.
What has changed
How it worked before
Trade and industry had asked for clarity on these points, so the rules were not being applied uniformly across tax offices. The document does not describe a separate earlier rule for each point, so treat it as the official reading of the existing law.
What has changed
The circular confirms that each business vertical or place of business can hold its own ISD registration. It says the ISD must share credit only with the unit it is meant for. It says the receiving unit must meet the eligibility conditions for credit, not the ISD. It says credit is shared in the month the ISD finds it eligible. It says invoices sent to an ISD under rule 54(1A) (a same-PAN transfer rule) do not count as turnover for refund calculations. The document does not state an effective date.
Who this affects
If you run a business with more than one branch, factory or division in the same state under one PAN (the permanent account number linked to your tax ID), and one unit receives service bills for the others, this applies to you. It also applies if you are a GST-registered exporter with the same PAN and state as an ISD, and you claim GST refunds.
An example
Anand Engineering has a head office and two factories in one state, all under one PAN. The head office receives a consultancy bill for work that benefits both factories, so it acts as the ISD. Under the circular, each factory needs its own registration if it receives credit this way, and the head office can share the credit only with the factory it is meant for. The head office must also check whether each part of the credit is eligible and share it in the month it finds it eligible. The factories, not the head office, must meet the eligibility conditions before they claim the credit.
What you should do
If your business runs an ISD: check that each branch or division receiving shared service bills has its own ISD registration. Share credit only with the unit it belongs to. Split eligible and ineligible credit, and share it in the month you find it eligible. If you receive shared credit: check that you meet the eligibility conditions and any reversal rules yourself. If you are an exporter with same-PAN invoices to an ISD: leave those invoice amounts out of your turnover and your refund calculation.
If you do nothing
If an ISD shares credit wrongly, the tax office can impose a penalty of Rs 10,000 or the amount of credit shared wrongly, whichever is higher, under section 122(1)(ix) of the Central Goods and Services Tax Act, 2017 (CGST Act). Excess credit shared with a recipient can be recovered from that recipient with interest, under section 21 of the CGST Act. A recipient who claims credit it is not eligible for must reverse it, as the eligibility rules require.
The terms explained
- Input Service Distributor (ISD)
- An office that receives GST bills for services used by other business units and passes the GST credit on to them.
- input tax credit
- The GST you paid on purchases, which you can set off against the GST you owe.
- distinct person
- A separate business unit, such as a branch or division, that is registered on its own for GST.
- reverse charge
- A arrangement where the buyer, not the seller, pays the GST on certain services.
- turnover in State
- The total value of a registered business's sales within one state, used to work out refund limits.
The original document
| Issued by | GST |
|---|---|
| Document | Circulars CGST 260/06/2026-GST |
| Full title | Clarification on issues pertaining to Input Service Distributor. |
| Issued on | 26 October 2026 |
| Effective | Not stated (circular dated 26.10.2026) |
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