Circular 260: Input Service Distributor Clarifications on Registration, Reversals and Refunds
CBIC Circular 260/06/2026-GST: separate ISD registrations, same-month distribution in GSTR-6, who reverses ITC and treatment of ISD invoices for refunds.
Key takeaways: input service distributor
- An input service distributor can hold separate registrations for each business vertical or place of business in a State.
- Credit must be distributed in the same month and reported in GSTR-6.
- Recipients, not the ISD, make the section 17 reversals.
Table of contents
CBIC’s Circular No. 260/06/2026-GST, dated 26 October 2026, clarifies issues relating to the Input Service Distributor (ISD) under sections 2(61), 20 and 21 of the CGST Act and rules 39 and 54(1A) of the CGST Rules. It is issued under section 168(1).
Key clarifications
- Separate ISD registrations: separate ISD registrations are permitted for each business vertical or place of business within a State or UT. Any registrant that receives input service invoices for distinct persons must obtain an ISD registration, and may distribute credit only to the distinct person to whom it is attributable.
- Section 16 conditions: recipients of credit must meet the eligibility conditions, and the ISD must distribute credit as section 20 provides. Excess distribution is recoverable from recipients with interest under section 21. The ISD faces a penalty under section 122(1)(ix) of the higher of ₹10,000 or the tax evaded or credit distributed irregularly.
- “Available for distribution in a month”: the ISD must distribute credit in the same month and report it in GSTR-6. Credit becomes available once the ISD determines it is prima facie eligible, and eligible and ineligible credit are shown separately under rule 39(1)(g).
- Reversals under sections 17(1), 17(2) and 17(4): the ISD distributes the entire available credit; the recipients, not the ISD, make the reversals under rules 42 and 43 or rule 38.
- Turnover: invoices, credit notes and debit notes issued under rule 54(1A) are not outward supplies. They are excluded from “turnover in State” or “turnover in Union territory” for ITC distribution and from “adjusted total turnover” in refund computation under section 54(3) and rule 89.
- Refunds: credit transferred under rule 54(1A) is not ITC on the person’s inward supplies and cannot be counted as “Net ITC” under rule 89(4) or 89(5).
- Same-PAN, same-State registrant: it need not make section 17 reversals, but must transfer all ITC from reverse-charge payments to the ISD. The recipients make any reversals, and they may include that registrant.
Related: ITC conditions and blocked credits and CGST Amendment Rules 2026, which also revise ISD terminology in rules 36, 39 and 54. For GST help, see our GST services.
What to do next about input service distributor
Review how input service distributor affects your business: note the effective date, check your records and software, brief your team and keep a copy of the official text on file. Where the position is unclear for your case, take professional advice before filing or changing your process.
Official sources for input service distributor
Always read the original text. You can find notifications, circulars and rules on the CBIC Tax Information Portal and file returns and applications on the GST Portal. This guide on input service distributor is a summary and is not a substitute for the official text.
Frequently asked questions
Can a business have more than one ISD registration?
Yes, separate ISD registrations are permitted for each business vertical or place of business within a State or UT.
Who makes the section 17 reversals?
The recipients of the distributed credit, not the ISD, according to the circular.
Which return reports ISD distribution?
GSTR-6, in the same month in which the credit is available for distribution.
This article is for general information only and is not tax, legal or financial advice. It is based on the text of the notification or circular as published by CBIC. Rules, rates and criteria change, so confirm the latest position with the official source or a professional before acting.
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