December 26, 2022

Rule 39: CGST SGST Rules

The process of distributing the input tax credit (ITC) by the input service distributor is described in Rule 39 of the CGST/SGST. Any business that registers under Goods and Service Tax must adhere to Rule 39 of CGST/SGST.

Input tax credit, or ITC, means that we can reduce the tax we have already paid on inputs when we pay tax on output. An input service distributor, or ISD, is a supplier of goods and services who receives tax invoices for input services received. An input service provider must distribute the input tax credit in a specific manner and under specific conditions. A prescribed document will be issued to distribute the credit of central tax, state tax, and union territory tax.

Meaning of Input Tax Credit

Input tax credit is the tax paid on purchases of inputs against the tax to be paid on outputs. The input service distributor (ISD) delivers ITC to branches with the same PAN but different GST numbers. The ISD must send an invoice that clearly says that it is for ITC distribution. The ISD receives invoices for services used by each branch, and ITC is distributed proportionally to the ISD's various branches. An input service distributor receives an invoice for the acquisition of a service under the service tax system. The services could have been delivered to one or more units or branches. ISD then sends out invoices or bill.

Rule 39 CGST & SGST

Input service distributor

The rules governing an input service distributor are contained in the service tax. The GST rules allow for the separate registration of an ISD. The ISD must obtain a separate registration in addition to its normal registration. The ITC would be distributed to the branches that provide output services. An Input Service Distributor receives tax invoices from branches under the GST regime. Then, in accordance with GST rules, such as ISD issues an ISD invoice for the purpose of distributing credit proportionally among the various branches.

1. The input service distributor will be required to issue an ISD invoice stating that this invoice is solely for the purpose of distributing ITC.

2. The ISD can divide the input tax credit into two parts: eligible credit and ineligible credit.

3. If the recipient unit is located in the same state as the ISD, then the credit from the Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) will be distributed in the form of CGST or SGST or Union Territory Goods and Services Tax (UTGST).

4. If the recipient unit is located in a different state as the ISD, the CGST, SGST, or UGST credit will be distributed as Integrated Goods and Services.

Filing of returns under Rule 39

1. Every month, an input service distributor is required to comply with the requirements relating to return filing.

2. ISD submits GSTR-6 every month. In general, it should be filed by the 13th of next month. Only the government has the authority to change the deadline.

3. Apart from that, credit for purchase invoices can be claimed in GSTR3B and filed each month. These purchases may be confirmed using Form GSTR2A.

4. An ISD is not required to submit GSTR9 and GSTR 9C. This implies that an ISD is not required to file an annual return.

Procedure for distributing ITC by an ISD

The distribution of ITC by ISD will be done as per Rule 39 of the CGST/SGST rules. The distribution will be made as per the following:

1. The credit for a given month must be distributed exclusively for that month, and the information must be reported on the GST portal using GSTR6.

2. The Input Tax Credit of ineligible service and eligible service should be indicated separately as credit is taken for eligible service only.

3. Every receiver will receive an ITC on account of IGST as an ITC of IGST.

4. The Input Service Distributor issues an ISD invoice that clearly states that this invoice is purely for the purpose of distributing ITC.

5. If any ISD receives a debit note from the supplier, it must pay the debit note in the same month.

6. If an ISD receives a credit note that reduces the amount of ITC available, the ISD must issue an ISD credit note to the recipients to whom the credit was originally awarded. In proportion to the initial credit, a credit note should be provided. The ISD credit will not be issued during the month for which the credit remark appears on the ISD's GSTR 6A.

7. When credit for input services is assigned to a single recipient, the credit is assigned to that recipient. For example, if an ISD in Kolkata gets an invoice for IT maintenance services provided at a Bengaluru branch, the credit will be distributed exclusively to the Bengaluru branch.


As a result, ISD is a service provided to businesses with many shared expenses that allows invoicing and payment to be done in one location. The primary goal of this approach is to make credit-taking easier for businesses while also ensuring that credit flows smoothly under the GST regime. Rule 39 of the CGST/SGST rules specifies how an Input Service Distributor distributes input tax credits as a result.

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