3578355 - GST IN : Changes in ISD solution applicable from 1 April, 2025 in SAP S/4HANA Cloud Public Edition

Starting April 1, 2025, the Input Service Distributor (ISD) mechanism under the CGST Act will be mandatory for distributing Input Tax Credit (ITC) on common input services, including both domestic and imported services.

Amendments related to the definition of Input Service Distributor (ISD) in Section 2(61) and the manner of credit distribution by ISD in Section 20 of the CGST Act will take effect on April 1, 2025.

Businesses need to identify services that must be routed through ISD and determine the states where ISD registration is required based on their procurement patterns. Timely communication with vendors is essential to ensure invoices for common services are correctly raised on the ISD registration.

"Image/data in this KBA is from SAP internal systems, sample data, or demo systems. Any resemblance to real data is purely coincidental." 

• SAP S/4HANA Cloud Public Edition

Transfer of Tax Credit Under New ISD Rules
As per the new ISD rules, the transfer of credit from a non-ISD registered business place to an ISD registered business place will be executed by:

1. Posting a customer invoice (Create Outgoing Invoices App)
2. Followed by a vendor invoice (Create Incoming Invoices App)

To ensure both documents are linked to the original supplier invoice:

• Use BSEG-XREF1 to store the accounting document number of the original supplier invoice.
• Use BSEG-XREF2 to store the corresponding fiscal year.

Process Steps for Transferring Tax Credit

Follow the steps below for a detailed process on transferring the tax credit.

Transfer of credit from Branch (Regular GSTIN) to ISD (GSTIN):

1. Create a dummy balance sheet G/L account
   (Role: SAP_BR_GL_ACCOUNTANT, App: Manage G/L Account Master Data)
   
   
   G/L should not be open item managed, Tax category should be ‘*’ to allow both input and output tax codes.
   
2. Create a business partner in customer role representing ISD business place
   (Role: SAP_BR_BUPA_MASTER_SPECIALIST, App: Manage Business partner master data)
   
   
   
3. Create a business partner in Supplier role representing Branch Business place
   
   
   
4. Capture Original supplier invoice in branch business place using Create Incoming Invoices or Create Supplier Invoice Advanced App.
   
   
5. Create Outgoing invoice against each supplier invoice. 
   (Role: SAP_BR_AR_ACCOUNTANT, App: Create Outgoing Invoices).
   
   Use appropriate output tax code and use the dummy GL created, post this document in Branch business place.
   
   While creating Outgoing invoice, mention invoice number in FI --> Details --> Accounting document against original Supplier invoice as Reference 1 and its fiscal year in Reference 2 fields.
   
   
   
   

6. Create Incoming invoice against each Outgoing invoice posted at the branch business place.
   (Role: SAP_BR_AP_ACCOUNTANT, App: Create Incoming Invoices)

   Use the same dummy G/L account. Use the appropriate input tax code.

   While creating Outgoing invoice, mention invoice number in FI --> Details --> Accounting document against original Supplier invoice as Reference 1 and its fiscal year in Reference 2 fields.
   
   
   
   
   
   Now, the credit is successfully transferred to ISD business place and while posting this Incoming invoice, ISD distribution will automatically be triggered as per the configuration and same can be viewed in Re-distribute and Create ISD Invoices – India App.
   
   
   

7. Clearing of supplier and customer open line items against each other. Use Clear Incoming Payments or Clear Outgoing Payments App
   (Role: SAP_BR_AP_ACCOUNTANT, App: Clear Outgoing Payments)
   
   
   
   

   Enter document number(Incoming Invoice number) and click on other account
   
   
   
   

   Enter customer number, account type and document number
   
   
   
   

   Enter Outgoing Invoice number and click on process open items.
   
   
   

   Save to clear the items against each other.
   
   
   

   Access App Manage Supplier Line Items with role SAP_BR_AP_ACCOUNTANT.
   
   
   

   Access App Manage Customer Line Items with role SAP_BR_AP_ACCOUNTANT
   

1. Input Service Distribution | SAP Help Portal
2. 3553657 - No Distribution Details found for the entered ISD Business Place error in J1IG_ISDN : GST IN
3. 3573453 - GST IN : Changes in ISD solution applicable from 1 April, 2025
4. Regulatory Change Manager

ISD, J1IG_ISDN, RCM, Union Budget, 1st April, 2025, Input Service Distributor, Input Service Distribution, CGST, India, GST, Goods and Services tax, Section 2(61), Credit distribution, transfer of credit, Public Cloud, Cloud, Re-distribute and Create ISD Invoices – India , KBA , FI-LOC-MM-IN , India (aka XX-CSC-IN-MM) , FI-LOC-LO-IN , India , Problem