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Dynamics 365 Community / Forums / Finance | Project Operations, Human Resources, ... / Input Service Distribu...
Finance | Project Operations, Human Resources, ...
Suggested answer

Input Service Distribution (ISD) for Dynamics 365 Finance

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Posted on by Mitesh Makwana 22
Hello Experts,
We are trying to implement Input Service Distribution (ISD) in our D365 Finance environment (India Localization). I would like guidance on the following:
1. How to configure ISD in Dynamics 365 Finance?
2. How to post ISD transactions from the head office to branch offices?
3. How tax credits (GST Input Tax Credit) are transferred and accounted?
4. Is there any standard report or feature to track ISD distribution?
 
Also, I would like to understand how ISD is handled in Dynamics 365 Business Central (India localization) and why it is not available in  D365 Finance.

https://learn.microsoft.com/en-us/dynamics365/business-central/localfunctionality/india/gst-input-service-distribution-overview
 
Thanks in advance.
 
Categories:
Dynamics 365 Finance
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  • Suggested answer
    CA Neeraj Kumar Profile Picture
    CA Neeraj Kumar 1,169 on at
    Input Service Distribution (ISD) for Dynamics 365 Finance
    Hi Mitesh,
     
    Yes, it is true that ISD registration for GST is not directly available in D365. To achieve the requirement, we follow below steps:
    1. Create 1 non-primary GSTIN (ISD) in tax information so that it can be selected at the time of booking [assuming same warehouse is used for ISD and normal transactions]
    2. All inputs will be available at the ISD GSTIN, at month end, tax journal needs to be passed to transfer the GST amount from one GSTIN to other [at accounting entries level].

    Example:
    X is (Registered Input Service Distributor and is considered as HO. It has two branches based in other states. X has paid the advertisement services from local vendor and the invoice of INR. 99000 including GST of INR. 9000. The other Branches were Y and Z, and all the branches are providing the taxable services or manufacture of taxable goods.
    The Amount of GST (CGST+SGST) of INR.9000 should be distributed among three branches. The GST distribution on prorate basis of last year turnover of each branch. The turnover of the HO and branches as under:
    X INR. 50,000
    Y INR. 80,000
    Z INR.120000
     
    If organization is new or doing distribution in the first year of operation than distribution will be done on the basis prescribed by the government.
     
    Distribution will be made as under:
    X = 9000 x 50000/250000 = 1800
    Y = 9000 x 80000/250000 = 2880
    Z = 9000 x120000/250000= 4320
     
    The following entries will be passed:
     
    At the time of Purchase of Services and GST by the Branch X:
     
    Particulars Debit INR Credit INR
    Advertisement service a/c 90000  
    CGST Credit a/c 4500  
    SGST Credit a/c 4500  
    Vendor   99000
     
    At the time of distributing the credit to the Branches as located in other states:
     
    Entry in the HO
    Particulars Debit INR Credit INR
    Branch Y 2880  
    CGST Credit a/c   1440
    SGST Credit a/c   1440
     
    Particulars Debit INR Credit INR
    Branch Z   4320  
    CGST Credit a/c   2160
    SGST Credit a/c   2160
     
    Entry in the respective Branches :
     
    Particulars Debit INR Credit INR
    H.O (Head office account)     2880
    IGST a/c 2880  
     
     
    Particulars Debit INR Credit INR
    H.O     4320  
    IGST a/c 4320    
     
     
    In above case user can take Tax - Vendor combination.
    Please note that user has to post one entry per month for such distribution and total number of twelve entries for full year.

    In case of any query, please let us know.
    Regards,
    Neeraj
     
    If this helped, please mark it as "Verified" for others facing the same issue
    Keep in mind that it is possible to mark more than one answer as verified
     
  • Suggested answer
    DAnny3211 Profile Picture
    DAnny3211 11,334 on at
    Input Service Distribution (ISD) for Dynamics 365 Finance

    Hi,

     

    Input Service Distribution (ISD) under GST is a statutory requirement in India for distributing Input Tax Credit (ITC) on common input services from a head office (ISD registration) to branch offices under the same PAN. Here’s how this applies to Dynamics 365 Finance:

     
     

    ✅ 1. ISD in Dynamics 365 Finance – Current Status

     

    • Out-of-the-box ISD functionality is not part of standard India localization in D365 Finance. Microsoft’s official scope for India covers GST, TDS, and related compliance, but ISD is not included as a standard feature.[1][2]

    • Many partners have developed custom solutions or ISV add-ons to meet ISD requirements. These typically use Tax journals or custom ISD journals to distribute ITC from the ISD GSTIN to recipient GSTINs.[3]


      •  
     
     

    ✅ 2. How to Configure ISD (Custom Approach)

     

    • Create a dedicated ISD legal entity (Head Office) with ISD GST registration.

    • Use Tax journals in the Tax module:

      • Line 1: Credit the ISD GST payable accounts (CGST/SGST/IGST).

      • Line 2: Debit the receiving branch GST recoverable accounts.

    • Repeat for each branch and tax component.

    • Ensure tax codes and posting profiles are set up for both ISD and recipient GSTINs.[3]


      •  
     
     

    ✅ 3. Posting ISD Transactions

     

    • Post the tax journal in the ISD entity to transfer ITC to the branch.

    • Generate ISD invoice numbers and maintain reference for compliance.

    • Branch entity records the ITC credit in its books via the same journal or intercompany posting.


      •  
     
     

    ✅ 4. Tax Credit Transfer & Accounting

     

    • ISD credits are distributed proportionately based on turnover or usage.

    • Maintain clearing accounts for ISD distribution to ensure reconciliation.

    • No redistribution is allowed from branches (as per GST law).[4]


      •  
     
     

    ✅ 5. Reporting & Compliance

     

    • There is no standard ISD report in D365 Finance.

    • You must build custom reports or use Electronic Reporting (ER) for:

      • ISD invoice register.

      • GSTR-6 return (mandatory for ISD).[5]


      •  
     
     

    ✅ Comparison with Business Central

     

    • Business Central India localization includes ISD as a standard feature, with:

      • ISD setup on locations.

      • Automated GST component distribution.

      • ISD invoice generation and GSTR-6 reporting.[6]

    • D365 Finance requires customization or partner solution for similar functionality.


      •  
     
     

    Would you like me to prepare a detailed Word-style implementation guide for D365 Finance covering:

     

    • ISD journal configuration.

    • Posting process with examples.

    • Suggested ER report templates for ISD compliance?


      •  
     

    Thanks and best regards,

    Daniele

    Note: This response was prepared with support from Copilot to ensure clarity and completeness.


    References
  • Suggested answer
    Nour Abuzaid Profile Picture
    Nour Abuzaid 157 on at
    Input Service Distribution (ISD) for Dynamics 365 Finance

    Hi Mitesh,

    Currently, Input Service Distribution (ISD) is not available as a standard feature in Dynamics 365 Finance (India localization). It is supported in Business Central, as per the documentation you shared.

    ✅ Key Points

    1. Dynamics 365 Finance

      • ISD is not included out-of-the-box in Finance India localization.
      • To implement ISD, you would need customization or a partner-developed solution to allocate GST Input Tax Credit across branches.
      • There is no standard report or feature for ISD in Finance today.

    2. Dynamics 365 Business Central

      • Business Central supports ISD natively for distributing GST Input Tax Credit across locations.
      • It includes processes for ISD setup, distribution, and reporting.

    3. Recommendation

      • If ISD is critical, consider:
        • Raising it as an idea on Microsoft Ideas portal.
        • Engaging a localization partner for a custom solution in Finance.

    ✅ References

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