1. Title of the Document
| Document Title | Circular No. 260/06/2026-GST – Clarification on Issues pertaining to Input Service Distributor |
| Document Number | Circular No. 260/06/2026-GST (F. No. CBIC-20001/2/2026-GST) |
| Issuing Authority | Central Board of Indirect Taxes and Customs (CBIC), GST Policy Wing, Department of Revenue, Ministry of Finance, Government of India |
| Date of Document | 26.10.2026 |
| Relevant Provisions | CGST Act, 2017: sections 2(61), 2(112), 16, 17(1), 17(2), 17(4), 17(5), 20, 21, 25(2), 25(4), 54(3), 73, 74, 74A, 122(1)(ix) and 168(1). CGST Rules, 2017: rules 38, 39(1)(a), 39(1)(g), 42, 43, 54(1A), 65, 89(4) and 89(5). Forms GSTR-1, GSTR-6 and GSTR-6A. |
2. Summary of the Document
The Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 260/06/2026-GST dated 26.10.2026 on representations from trade and industry regarding the Input Service Distributor (ISD). In exercise of its powers under section 168(1) of the CGST Act, 2017, the Board clarifies seven issues under sections 2(61) and 20 of the Act and rules 39 and 54(1A) of the CGST Rules, 2017, to ensure uniform implementation.
On registration, separately registered business verticals or places of business within a State or Union Territory are distinct persons under sections 25(2) and 25(4), and nothing bars more than one ISD registration for each. Every registrant receiving input service invoices for or on behalf of distinct persons, to be distributed under section 20, must obtain ISD registration. Under rule 39(1), credit goes only to the distinct person to whom it is attributable.
On responsibility, the ISD must distribute credit as provided in section 20, while the recipients of credit must satisfy the conditions of sections 16 and 17 and the rules. Distribution in contravention of section 20 attracts penalty on the ISD under section 122(1)(ix), and excess credit is recoverable from recipients with interest under section 21, with sections 73, 74 or 74A determining the amount.
On timing, credit becomes available for distribution under rule 39(1)(a) only when the ISD, after the invoice appears in FORM GSTR-6A, ascertains it to be prima facie eligible. It must be distributed in that month, separately as eligible and ineligible under rule 39(1)(g), and reported in FORM GSTR-6. The ISD distributes the entire credit, and recipients make reversals under section 17(1), 17(2) or 17(4) read with rules 42, 43 and 38.
On rule 54(1A), the Board clarifies that it is merely a credit transferring mechanism. A document issued under it by a registered person with the same PAN and State code as the ISD is not an outward supply, though it may be declared in FORM GSTR-1. Its value is excluded from turnover under section 2(112), from the turnover used for distribution under section 20, and from adjusted total turnover under section 54(3) read with rule 89. The credit is not that person’s input tax credit, does not qualify as Net ITC under rules 89(4) and 89(5), and needs no reversal by that person, who must transfer the entire credit on reverse charge payment to the ISD.
Legal Takeaway: The Circular places the burden of eligibility and reversal on recipients, confining the ISD to ascertaining prima facie eligibility and distributing credit in conformity with section 20 and rule 39. Taxpayers should review ISD registrations, record the monthly ascertainment, split eligible and ineligible credit, and exclude rule 54(1A) documents from turnover and Net ITC in refund workings. A circular under section 168(1) binds departmental officers but cannot override the statute, and this one states no separate date of effect.
3. Tabular Summary
| S. No. | Issue | Relevant Provisions | Basis in the Circular | Clarification | Person Concerned | Consequence | Practical Takeaway |
|---|---|---|---|---|---|---|---|
| 1 | Whether ISD registration is required for each business vertical or place of business within the same State/UT. | Sections 2(61), 20, 25(2), 25(4); rule 39(1) | Separately registered verticals or places of business are distinct persons; no bar on more than one ISD registration for each. | Each registrant receiving input service invoices for or on behalf of distinct persons, liable to be distributed under section 20, must obtain ISD registration. Credit goes only to the distinct person to whom it is attributable. | Each such registrant (ISD) | ISD registration for each such vertical or place of business, with attribution-based distribution. | Map ISD registrations vertical-wise and place-wise and keep attribution records. |
| 2 | Whether the ISD or the recipient of credit must comply with the conditions of section 16. | Sections 2(61), 16, 17, 20, 21, 73, 74, 74A, 122(1)(ix) | Section 21 recovers excess distribution from recipients; section 122(1)(ix) penalises contravention of section 20. | ISD distributes credit in the manner provided in section 20. Recipients must comply with the conditions in sections 16 and 17 and the rules. | ISD (distribution); recipients of credit (eligibility) | ISD is liable to penalty for contravention of section 20; excess credit is recoverable from recipients under section 21. | Recipients should independently verify eligibility conditions for credit received. |
| 3 | Meaning of input tax credit available for distribution in a month under rule 39(1)(a). | Sections 16(2), 17(5), 20(2); rules 39(1)(a), 39(1)(g), 65; FORMS GSTR-6A and GSTR-6 | Procurement is made centrally, so the ISD that receives the invoices is best placed to determine eligibility. | Credit is available for distribution only when the ISD ascertains it to be prima facie eligible. It is distributed in the month of ascertainment, separately as eligible and ineligible, and reported in FORM GSTR-6. | ISD | Month of distribution follows the month of ascertainment of prima facie eligibility. | Record the date of ascertainment and separate eligible and ineligible credit. |
| 4 | Whether the ISD or the recipient must make reversals under section 17(1), 17(2) or 17(4). | Sections 16, 17(1), 17(2), 17(4), 20; rules 38, 42, 43 | ISD distributes credit as per section 20; recipients must comply with sections 16 and 17. | ISD distributes the entire credit available to the recipients to whom it is attributable. Recipients make the reversals. | Recipients of credit | Reversal liability sits with recipients, not the ISD. | Recipients should run rule 42, 43 and 38 workings on credit received from the ISD. |
| 5 | Whether the amount in a rule 54(1A) invoice, credit note or debit note counts as turnover. | Sections 2(112), 20, 54(3); rules 39, 54(1A), 89 | Rule 54(1A) is merely a credit transferring mechanism and the document is not for an outward supply of the issuer. | The amount does not qualify as turnover in the State or Union territory and is excluded from the computation for distribution and from adjusted total turnover, though it may be declared in FORM GSTR-1. | Registered person with the same PAN and State code as the ISD | Turnover and the maximum refund amount are computed without this amount. | Exclude such documents from turnover workings and refund computations. |
| 6 | Whether credit transferred under rule 54(1A) is input tax credit of the transferor and counts as Net ITC for refund. | Rules 54(1A), 89(4), 89(5) | Rule 54(1A) is merely a credit transferring mechanism. | The credit is not input tax credit on inward supplies of that person and does not qualify as Net ITC under rules 89(4) and 89(5). | Registered person with the same PAN and State code as the ISD | Transferred credit is left out of Net ITC in refund computation. | Do not include transferred credit as Net ITC in refund claims. |
| 7 | Whether the transferor under rule 54(1A) must make reversals under section 17(1), 17(2) or 17(4). | Sections 17(1), 17(2), 17(4); rule 54(1A) | Transferred credit is not input tax credit on that person’s inward supplies. | No reversal by that person. The entire credit on tax paid under reverse charge is transferred to the ISD. Recipients make reversals, and may include that person. | Transferor; recipients of credit | Reversal obligation rests with the recipients, including the transferor where it is a recipient. | Transfer the entire credit to the ISD and leave reversals to the recipients. |
Download the Document: Circular No. 260/06/2026-GST (PDF)
Disclaimer: Prepared by Team GSTIndiaguide.com. This summary is for information and does not constitute legal advice. Refer to original notification, judgement, circular or other documents for reference.
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