ISD Credit and Export Refunds: CBIC's Circular 260/06/2026-GST Clarifies What Counts as "Net ITC"

Exporters that run multiple GST registrations under one PAN — a head office plus branch units, or a group of factories — share common input-service costs such as audit, software, insurance and head-office overheads. Since the Input Service Distributor (ISD) mechanism became mandatory, those common input-service credits must be routed through an ISD registration and distributed to the units that use them. CBIC's Circular No. 260/06/2026-GST, dated 26 October 2026, clarifies how the ISD mechanism works and, importantly for exporters, confirms that credit distributed by an ISD does not form part of "Net ITC" when a unit computes its export or inverted-duty refund.

This is a technical point with real money attached: getting it wrong inflates or deflates a refund claim and invites a deficiency memo.

What Happened

Circular 260/06/2026-GST addresses the ISD regime and the treatment of ISD-distributed credit. For refund purposes, the key clarification is that credit transferred to a unit by an ISD is excluded from the "Net ITC" used in the refund formulas under Rule 89(4) (zero-rated/export refunds) and Rule 89(5) (inverted duty structure). "Net ITC" in those formulas is built from input and input-service credit availed by the claimant unit itself — not credit passed down from the ISD.

The circular is part of the wider set of clarifications CBIC issued in late October 2026 to give effect to the 57th GST Council's recommendations.

Why / Background

The refund formula for zero-rated exports multiplies "Net ITC" by the ratio of export turnover to total turnover. If a unit were to include ISD-distributed input-service credit in "Net ITC," its refund entitlement would be overstated, because that formula is designed to refund the unit's own accumulated credit on inputs and input services. The exclusion keeps the formula internally consistent and avoids double counting across a multi-GSTIN group. The clarification matters now because the ISD mechanism is mandatory, so far more exporters are receiving credit through this route than before.

Who's Affected

• Exporters with multiple GST registrations under one PAN that distribute common input-service credit via an ISD.
• Group companies and multi-plant manufacturers claiming export or inverted-duty refunds.
• Tax and finance teams and consultants preparing Rule 89(4)/(5) refund workings.

What Exporters Should Do Now

• Separate ISD-distributed credit from own-availed input and input-service credit in your refund workings, and exclude ISD credit from "Net ITC."
• Review refund claims filed since ISD became mandatory to confirm they were computed on this basis; correct the approach going forward.
• Align your ERP/accounting tags so ISD credit is identifiable and does not leak into the refund formula.
• Brief your consultant to reconcile the ISD distribution (FORM GSTR-6) with each unit's refund computation.

The Bigger Picture

Circular 260 is one of several clarifications issued alongside CBIC's refund-automation rules in late October 2026. As refunds become more system-driven and provisional amounts are released faster, the accuracy of the underlying "Net ITC" figure matters more, not less — because a clean, correctly computed claim is what keeps an exporter in the low-risk, fast-refund lane. For multi-GSTIN exporters, ISD hygiene is now part of refund hygiene.

Frequently Asked Questions

Does ISD-distributed credit count toward my export refund? No. Per Circular 260/06/2026-GST, credit distributed to a unit by an ISD is excluded from "Net ITC" in the Rule 89(4) and 89(5) refund formulas.

Who needs to worry about this? Exporters and manufacturers with more than one GST registration under the same PAN who distribute common input-service credit through an ISD.

Could including ISD credit cause a problem? Yes — it would overstate the refund and can trigger a deficiency memo or later recovery. Keep ISD credit out of the refund formula.

Conclusion

Circular 260/06/2026-GST is a plumbing clarification, but exporters with multi-GSTIN structures should act on it: exclude ISD-distributed credit from "Net ITC," check past claims, and tag credit types cleanly in your systems so refund claims compute correctly and stay in the fast lane.

This article summarises CBIC Circular No. 260/06/2026-GST dated 26 October 2026 for general guidance. Confirm the exact wording and its application to your facts against the official circular and professional advice. Source: Central Board of Indirect Taxes and Customs (cbic-gst.gov.in).