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January 20, 2020

Input Service Distributor (ISD) under India GST law and SAP solution


The GST law, which was enacted under Central Goods and Services Tax Act, 2017 is not new concept in India. Although, it was enacted, more than 2 years back and most of the SAP clients are already using SAP GST solution there are certain areas, which are unexplored or not implemented completely due to complexity of the same or due to in-applicability of the same at the time of earlier implementation. One such complex area is ISD solution under GST.

An Input Service Distributor is a unit who receives GST (CGST/IGST/SGST) invoices for goods and services related to its branches. It is common for HO (Corporate Office) of large manufacturing organizations to receive services related to Audit and taxation, maintenance services (ERP) on behalf of its branches. In such cases, the Invoice along with tax is raised with HO. Since HO does not have any selling activity, the tax benefit remains unutilized if not passed to the respective branches. GST law gives the benefit to use the same by branches with certain conditions and rules laid down by GST law. I have tried to put the solution given by SAP for ISD and rules given by GST law. 

What does Government of India say about ISD?

Input Service Distributor (ISD) means an office of the supplier of goods or services or both, which receives tax invoices towards receipt of input services.

The concept of ISD under GST is a legacy carried over from the Service Tax Regime. The government of India has laid down certain conditions and rules in order to help the entities claim ISD tax on the services rendered to the HO or corporate office as mentioned in below picture.


Fig 1: ISD Applicability and Rules 


ISD-Applicability-and-Rules.jpg

How does SAP standard solution for ISD under GST work?

SAP has given complete solution with a set of notes in SAP ISD notes for ECC and S/4 HANA.

The solution requires customization's as per the standard document given in the notes.  The ISD solution can be implemented in two steps after implementing the notes:

1)      ISD customization's table to be maintained

2)      ISD execution steps

The SAP standard solutions work for more than 90% of the clients and in case there is a need to implement any custom logic, SAP has given standard BADI's in the notes for meeting the requirement.

 

Fig 2 : ISD customization and Execution steps
SAP-customization-and-execution.jpg

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