As per the implementation of IMS, taxpayers will have the functionality to meticulously match their invoices with those reported by their suppliers in GSTR-1. This process will enable them to accept, reject or keep invoices pending till the filing of their GSTR-3B. Accepted invoices will be seamlessly integrated into GSTR-2B, which determines the eligible ITC for the period.
IMS aims to bring about an evolution in the regulatory framework, which means a transformation, aligning technological progress with improved procedures for managing invoice disputes and approvals. These changes promise to improve accuracy and efficiency in financial transactions, setting new standards for business practices in the industry, including micro, small and medium-sized enterprises (MSMEs).
A paradigm shift
A closer look at the system reveals that it not only requires a paradigm shift in input tax credit and technological advancements, but also trade protocols for invoice approval and dispute resolution that can serve as a solid form of evidence in potential legal proceedings.
A notable feature of the IMS is its dynamic update capability, which quickly reflects on the recipient’s IMS dashboard data that could affect a taxpayer’s credit rights. While the IMS introduces significant improvements and a step-change in technology, it requires several advocacy points that could further improve its effectiveness, such as the recovery of credits within the timeframes set out in Section 16(4) for invoices rejected in error and the incorporation of a feedback function for invoice rejections, which will significantly improve communication.
While GSTN’s ideas are sublime in this bold move called ‘Invoice Management System’, which is much more than credit alignment under GST, however, the success of IMS ultimately depends on technology, comprehensive legal framework, industry compatibility and alignment with the field formation. Also, GSTN might have to reconsider the time frame for its implementation of IMS, which is currently proposed as
October 1, 2024.
The month in question also calls for finalising GST records with financial statements for all purposes. Needless to say, it is essential to address gaps in the IMS in relation to legislation, including establishing liability for rejected credit notes, as well as addressing credit losses from inadvertent rejections of invoices for higher profits claimed.
Challenges
Like any significant change, invoice management systems (IMS) face their own set of challenges. Their success will depend on the effective integration of tax and advanced technology at the business level.
While the government has made significant progress in digitising GST through the introduction of IMS, businesses must now prioritise their own digital transformation. This will help prevent cash flow issues, profit and loss impacts and commercial disputes with suppliers and customers.
—The authors; Saurabh Agarwal and Jasmeen Anand are tax partners and Senior Tax Professional at EY India. The views expressed are personal.
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