The Goods and Services Tax (GST) framework in India has undergone several changes since its inception in 2017. One of the most significant updates is the introduction of the Invoice Management System (IMS) by the Goods and Services Tax Network (GSTN), launched in October 2024. This new system aims to enhance the accuracy and transparency of invoices, making it easier for businesses to claim Input Tax Credit (ITC) while improving overall compliance with GST regulations.
Although the IMS promises to streamline the invoicing process, it also raises several concerns regarding administrative burden, legal validity, and operational complexity.
Legal validity of IMS
One of the major concerns surrounding the new system is its legal foundation. The IMS introduces processes similar to those proposed in the now-abandoned GSTR-2 and GSTR-3 forms, which were scrapped due to complexity. Many businesses are questioning whether IMS has legal backing, mainly since it revives aspects of an eanlier defunct system. This raises risk of legal disputes as businesses may challenge the system’s validity. It will be important to note that IMS provisions are not part of statutory framework as of now even as made optional by GSTN.
Acceptance of wrong invoices
The deemed acceptance provision introduces the risk of businesses inadvertently accepting incorrect invoices. If a business fails to review an invoice within the specified timeframe, it may passively accept discrepancies, which could lead to incorrect ITC claims and potential disputes with suppliers. This could become a significant issue for businesses with high transaction volumes, as the manual effort required to review each invoice may be considerable.
Confusion for recipient
One of the more complex aspects of the IMS is the requirement for recipients to reassess invoices when suppliers modify them. If a recipient has already acted on an invoice and the supplier subsequently makes changes, the recipient’s original action is nullified, and they must re-evaluate the invoice. This could create confusion and add to the compliance burden, as businesses need to constantly monitor and track supplier modifications.
Tracking pending invoices
Another major concern is the need to track pending invoices in IMS separately from accounting systems like SAP or Tally. This creates a duplication of effort and increases the complexity of the compliance process. Businesses will need to ensure that their ERP systems are aligned with the new IMS functionalities to avoid reconciliation challenges.
Suppliers’ liability
When recipients reject a credit note, suppliers face an increased tax liability in the following tax period. This requires suppliers to carefully monitor and manage rejected invoices, significantly adding to their compliance responsibilities. These issues underscore the need for precise handling of credit note rejections to avoid unintended financial consequences.
Another related complexity arises from managing invoice amendments. The system permits suppliers to amend invoices, with these changes automatically reflected on the recipient’s dashboard. If the recipient has already acted on original invoice, the amended data may overwrite the initial entries, causing confusion. Ensuring that both suppliers and recipients are aligned on amendments can be challenging.
Need for new softwares
As the new Invoice Management System (IMS) rolls out, businesses will likely face the need for updated software to meet the system’s demands. This requirement stems from the various new functionalities and compliance requirements introduced by IMS, which existing accounting and ERP systems may not fully support.
Large enterprises, including telecom, insurance, banking, and e-commerce companies that handle millions of transactions daily, will need to redesign, innovate, and establish new Standard Operating Procedures (SOPs) across the Accounts Payable function to ensure seamless recording of transactions.
Training staff
Businesses must invest in training their staff to handle the new complexities introduced by IMS. This includes teaching employees how to review invoices, track pending invoices, and manage invoice modifications efficiently.
Close ties with suppliers
To minimise disputes and ensure smooth compliance, businesses must work closely with their suppliers. Clear communication about invoice modifications and rejections will be key to avoiding compliance issues and maintaining strong supplier relationships. The introduction of the IMS marks a significant shift in the GST compliance landscape, offering businesses more control over their invoices and ITC claims. However, the system also introduces new complexities that businesses must carefully manage to avoid compliance issues, disputes, and delays in filing.
—Author Rajat Mohan is senior partner at AMRG & Associates