Section 20 – Manner of Distribution of Credit by Input Service Distributor (ISD)
Section 20 of CGST Act, 2017 – Manner of Distribution of Credit by Input Service Distributor (ISD)
Updated on: February 2026 (as amended and applicable till date)
Prepared by: Yours Tax Consultant
1. Bare Act Text – Section 20 (Effective Provisions)
Section 20:
The Input Service Distributor shall distribute the credit of central tax
as central tax or integrated tax and the credit of integrated tax
as integrated tax or central tax,
by way of issue of a prescribed document,
subject to the following conditions, namely:—
- (a) the credit can be distributed to the recipients of credit against a document containing prescribed details;
- (b) the amount of credit distributed shall not exceed the amount of credit available for distribution;
- (c) the credit of tax paid on input services attributable to a recipient shall be distributed only to that recipient;
- (d) the credit of tax paid on input services attributable to more than one recipient shall be distributed amongst such recipients in proportion to their turnover in a State or Union territory during the relevant period;
- (e) the credit attributable to a recipient located in a State or Union territory shall be distributed as central tax or integrated tax depending on the location of ISD and recipient.
2. Objective of Section 20
Section 20 provides a statutory mechanism for distribution of common input service credit among multiple GST registrations of the same PAN.
It ensures:
- Correct flow of ITC
- Avoidance of duplication or excess credit
- Fair allocation based on turnover
3. Meaning of Input Service Distributor (ISD)
As per Section 2(61), an Input Service Distributor is an office of the supplier which receives tax invoices towards input services and distributes the credit to its branches having the same PAN.
ISD can distribute only input service credit, not credit on goods or capital goods.
4. Nature of Credit Distributed under Section 20
The distribution depends upon:
- Type of tax (CGST / IGST)
- Location of ISD
- Location of recipient unit
Broadly:
- CGST → CGST or IGST
- IGST → IGST or CGST
This ensures seamless credit flow without breaking the GST chain.
5. Distribution on Proportionate Basis – Section 20(d)
Where input services relate to more than one unit, credit must be distributed based on:
- Turnover of each unit
- Relevant period (preceding financial year)
If a unit has no turnover in preceding year, turnover of last quarter is considered.
6. Mandatory Conditions for Distribution
ISD must ensure that:
- No excess credit is distributed
- Credit is distributed only to eligible units
- Blocked credit under Section 17 is not distributed
Wrong distribution may lead to recovery with interest and penalty.
7. Section 20 Read with Relevant CGST Rules
Distribution of ITC by ISD is governed by:
Rule 39 lays down the detailed computation and reporting mechanism.
8. Return Filing by ISD
An ISD is required to:
- File monthly return in Form GSTR-6
- Distribute credit only after filing GSTR-6
ISD cannot file GSTR-3B.
9. Common Practical Issues & Litigation
- Distribution of ineligible ITC
- Wrong turnover considered for apportionment
- Delay or non-filing of GSTR-6
- ISD registration not taken despite centralized invoices
GST audits frequently focus on ISD compliance.
10. Related Provisions
- Section 16 – Eligibility for ITC
- Section 17 – Apportionment & blocked credit
- Section 21 – Recovery of excess ISD credit
11. Professional Tip
If common services like audit, legal or IT are received at HO level, ISD mechanism must be used. Wrong or non-distribution of such ITC can result in large reversals during GST audit.
Disclaimer: This article is prepared based on the CGST Act, CGST Rules, notifications and prevailing legal position as applicable till date. Future amendments or judicial pronouncements may require revision.
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