As per India GST requirements, institutions like IIMU, who provide GST exempt services, are not eligible to take input credit while procuring goods and services used for those exempt supplies. Hence, on any vendor invoice, all costs, including GST on base amount, GST, charges, and GST on charges – all need to be added back to the inventory cost. 

Situation:

In a PO invoice on which we have applied a Charge code for freight and transportation. This charge code also has GST applicable with a SAC - 18%

The charges are applied at invoice header level and allocated to lines.

Tax document properly shows the GST amount as markup line.

Similar to the invoice lines in tax document, we have applied Load on Inventory percentage as 100% to all the lines.

After this, when we view Accounting, the Load on Inventory amount for the invoice lines is accounted under the item cost as expected under ‘Load on Inventory Remaining Amount.

But the Load on Inventory applied for GST on the charges is showing under GST recoverable (input credit), which is incorrect. Please note Load on Inventory here also is applied to 100%.

The tax document lines show the Load on Inventory percentage properly for the charge’s lines but the accounting distribution for GST on charges is not showing under proper account.

Expectation:

The Load on Inventory amount for the invoice lines is accounted under the item cost as expected under ‘Load on Inventory Remaining Amount’.

But the Load on Inventory applied for GST on the charges should show in the field ‘Load on Inventory Remaining Amount’ which is currently incorrectly showing under GST recoverable (input credit), Please note Load on Inventory here also is applied to 100%.

If I'm purchasing an item which is recorded to an inventory account and only the GST on charges cannot go to the inventory. Charges are added back to the inventory item price and tax on charges is also required to be added on the item price.

The tax document lines show the Load on Inventory percentage properly for the charge’s lines and the same should be showing in the ‘accounting distribution’ for GST on charges under proper account.

So this is not a bug, this is a configuration that Microsoft must make in the Tax Engine.