GST on Cross Charge & ISD Transactions
India’s GST law has evolved to ensure seamless tax compliance and credit flow across businesses. However, for large companies operating across multiple branches or states, one of the most complex challenges is understanding how to handle intra-company expenses—especially when it comes to Cross Charges and Input Service Distributor (ISD) mechanisms.
While both Cross Charge and ISD aim to distribute costs incurred at the Head Office or central team level, their application, documentation, and tax treatment differ significantly. Mismanagement or incorrect classification can lead to tax notices, interest liability, and blockage of Input Tax Credit (ITC).
In this blog, we break down what does GST on Cross Charge and ISD Transactions means, their key differences, how they impact your business, and how Cretum Advisory can help you stay compliant.
What does GST on Cross Charge & ISD Transactions?
Cross Charge under GST applies when the head office (HO) or any branch renders services or incurs costs on behalf of other units of the same legal entity (same PAN) but located in different states (different GSTINs).
Since GST treats each state-wise registration as a distinct person, any supply of service between two such registrations—even within the same company—is taxable.
Examples:
• HO pays for a software license used by all branches
• Central HR team conducts training for other state units
• The Head Office’s legal or branding team supports regional offices
These are intra-company services and must be cross-charged with GST, even if no invoice is raised or money exchanged.
What is an Input Service Distributor (ISD)?
The ISD mechanism allows a registered office (usually HO) to receive invoices for input services (like software, consulting, advertisement, etc.) and distribute the Input Tax Credit (ITC) proportionately to the units that actually use the service.
Example:
- HO receives an invoice for ₹1,00,000 for advertisement services for a pan-India campaign
- ITC of ₹18,000 is available
- HO distributes this credit to each GSTIN based on their turnover or usage
This is a credit distribution mechanism only. No GST is charged on the distribution, but it needs proper documentation.
Cross Charge vs ISD: What’s the Difference?
| Criteria | Cross Charge | Input Service Distributor (ISD) |
|---|---|---|
| Nature of Transaction | Supply of service (taxable) | Distribution of ITC (non-taxable) |
| GST Applicable | Yes | No |
| Invoice Type | Tax Invoice | ISD Invoice |
| ITC Distribution | Not applicable | Yes |
| Valuation Required? | Yes (open market or cost + markup) | No |
| Compulsory Registration? | No (if already registered) | Yes, as ISD |
Common Mistakes Businesses Make
1. Mixing up Cross Charge and ISD
➤ Many companies use ISD where Cross Charge is applicable and vice versa.
2. Not valuing intra-company services correctly
➤ The GST law requires market value or cost + markup to be used for valuation.
3. Ignoring GST on shared services
➤ Shared HR, IT, or admin functions must be accounted for under GST.
4. No documentation or mismatch in ITC
➤ Poor record-keeping leads to audit penalties and ITC denials.
When Should ISD and Cross-Charge Be Used?
| Scenario | Use ISD? | Use Cross Charge? |
|---|---|---|
| HO receives an invoice for software for all locations | ✅ | ❌ |
| HO’s HR team conducts training for regional teams | ❌ | ✅ |
| Consultancy invoice for pan-India operations | ✅ | ❌ |
| The legal team at HO handles branch disputes | ❌ | ✅ |
Compliance Requirements
For ISD:
- Must take separate ISD registration
- Issue an ISD invoice to each GSTIN
- Maintain detailed records of distribution
- File GSTR-6 monthly
For Cross Charge:
- Issue a tax invoice to the branch/unit
- Pay GST under forward charge
- Claim ITC in the receiving unit
- Disclose in GSTR-1 & GSTR-3B
How does Cretum Advisory help with Cross Charge & ISD Compliance?
We assist businesses in making legally correct, financially optimized decisions on whether to use Cross Charge or ISD, and execute the process end-to-end.
Our Services for Cross Charge & ISD Compliance:
• GST Advisory & Transaction Analysis
➤ Evaluate intra-company service structures to decide between Cross Charge or ISD
• Valuation & Tax Invoice Support
➤ In accordance with Rule 28, assist in determining fair value for cross-charge transactions.
• ISD Registration & Compliance
➤ Apply for ISD registration, set up systems, prepare ISD invoices, file GSTR-6
• GST Return Filing & ITC Management
➤ Ensure correct GST Return Filing, credit flow, match ITC, and handle audit queries
• Accounting & MIS Setup
➤ Automate monthly GST workings and cross-charge entries in books
• Custom SOPs & Documentation
➤ Prepare internal SOPs for seamless recurring compliance
With GST scrutiny increasing, especially on multi-location enterprises, our goal is to help you stay 100% compliant and avoid any tax liability, interest, or ITC loss.
The Final Thought
Understanding the difference between Cross Charge and ISD is critical for businesses with operations in multiple states. A wrong move can cost you dearly, both in terms of taxes and credibility during audits.
Whether you’re a startup scaling nationally or an established corporation with centralized services, handling intra-company transactions under GST needs strategy, documentation, and compliance discipline.
At Cretum Advisory, we make it easy. From advisory and registration to invoice formats and return filing—we help you implement the right structure with zero confusion and 100% compliance.
Frequently Asked Questions (FAQ)
Q1. Is ISD registration mandatory for credit distribution?
Yes. You must take a separate GSTIN as ISD to distribute credit lawfully.
Q2. Can a company opt for Cross Charge instead of ISD?
It depends. If the HO is providing actual services, Cross Charge applies. If it’s only about credit distribution, ISD is preferred.
Q3. Do I need to pay GST under Cross Charge even if no money is transferred?
Yes. Even if no monetary consideration is provided, GST is due on deemed supplies.
Q4. Can I use both ISD and Cross Charge together?
Yes, based on transaction types. Many businesses use both for different types of shared services.
Q5. What happens if I don’t comply with ISD or Cross Charge rules?
It may lead to GST audit notices, denial of ITC, interest, and penalties.