The Future of GST Compliance with Invoice Management System (IMS)

Compliance with GST rules and regulations has become a significant concern for businesses. Whether you are the CFO or finance manager of a large company with diversified business operations or a small business, you and your team might face similar problems while claiming input tax credits. However, we expect the future of GST compliance to improve with the Invoice Management System in the GST portal.

This article discusses the GST Invoice Management System and how it is changing the worldview of GST compliance.  

Table of contents:

• What is the IMS (Invoice Management System)? 
• Key benefits of IMS for GST compliance 
• How does IMS reduce non-compliance risks?
• Impact of IMS on different business sizes
• The future of GST compliance with IMS

What is IMS (Invoice Management System)? 

Invoice Management System is a new feature for communicating invoices saved/filed by suppliers/vendors in their GSTR-1 to recipient users. It is a dashboard inside the GST portal.  An invoice appears in the dashboard as soon as a vendor or supplier saves it.   

The IMS dashboard offers 2 broad functionalities - 

1. View Inward Supplies 
2. View Outward Supplies 

Inside the Inward Supplies section, the recipient gets to:

• Take action on the invoices saved by suppliers or vendors in their GSTR-1 for claiming ITC
• Check the summary of all the inward invoices and the latest status of each invoice based on  the actions taken 
• Download inward invoice data in Excel format
• Reset action status for multiple invoices 
• Generate GSTR-2B
• View the advisory or seek help if any clarification is required.

Inside the Outward Supplies functionality, suppliers get to:

• Check actions taken by recipients (B2B customers) on the outward invoice they saved in their GSTR-1 
• Download outward invoice data in Excel file format. 
• View the advisory or seek help if any clarification is required.

Key Benefits of IMS for GST Compliance 

• Improved accuracy in ITC claims 

Ensuring data accuracy while availing and claiming ITC in the portal has always been a significant problem for finance managers and CFOs. Usually, the accounts department must reconcile their records with invoices submitted by each supplier individually. Once fully active, the IMS dashboard will summarise all invoices with access to individual invoice data and action status on each invoice. Once the recipient user accepts an invoice, the system auto-populates GSTR-2B. The recipient taxpayers will also have greater control over data flowing into GSTR-2B regarding whether the data is correct and valid, significantly reducing the chances of data errors in ITC claims.

• Reduction in future SCNs following mismatch in claims    

Higher accuracy in ITC claims will lower the chances of show cause notices (SCN) for over-claiming ITC or incorrect distribution of claimed ITC. IMS flags deferred ITC claims as 'Pending,' ensuring thorough verification before ITC is claimed. This strengthens compliance, reducing the risk of errors or misuse. Users who want only eligible ITC documents in GSTR-2B can mark ITC as 'Pending' in IMS for later claims, thereby reducing notices. Incorrect invoices can be rejected upfront, avoiding the need for reversal in GSTR-3B and reducing DRC-01 notices. This will lower the compliance burden, disruption to business operations and risks of penalties. 

• Minimise workload for the accounting team 

An accounting team's primary challenge is keeping track of changing tax compliance issues. As a dynamic and evolving taxation framework, GST often causes such problems. The Invoice Management System dashboard automates a significant portion of the invoice reconciliation process for ITC claims. It guarantees that every ITC claim is rooted in authentic transactions by tracking invoices at the document level. This boosts accuracy, curbs fraudulent claims, minimises discrepancies in tax filings, and reduces the workload of the accounts team, especially for small businesses in QRMP schemes. Besides, the IMS feature will also open up new automation opportunities for GST-specific compliance processes.  

• Transparent and faster resolution of discrepancies in invoices 

The GST portal's invoice management system updates both inward and outward invoice data in real time. This means the dashboard reflects any change in saved invoices, submission of new invoices, or action taken by a recipient user in real time. So both suppliers and recipients can take action instantly, leading to greater communication between vendor and buyer. It helps resolve discrepancies in invoice data and recipients' purchase orders faster.  

How does IMS reduce non-compliance risks?

• Minimised necessity for manual intervention

The IMS dashboard in the GST portal facilitates the recipient user's action on inward invoices in a single window, which becomes part of GSTR-2B and GSTR-3B. This process reduces the necessity for manual intervention in the invoice reconciliation process, which means a lesser chance of human errors in the compliance process. 

• Better inspection of invoicing management 

For managers, the IMS dashboard offers better control over inspecting invoice status, especially for larger companies with multiple vendors and related-party transactions. The automatic flow of invoices to returns helps companies integrate the data with other enterprise applications, improving the capability to inspect and identify compliance errors. 

• Higher GST audit productivity 

The efficiency of the audit depends on an audit team's capability to inspect compliance processes, identify errors, and implement corrective measures quickly. Once fully active, the automated functionalities of GST invoice management will allow auditors to achieve better efficiency across the entire invoice and ITC claim processes.  

Impact of IMS on Different Business Sizes

• For micro and small businesses—The IMS feature in the GST portal provides a ready-made automated solution for streamlining invoice management and reconciliation processes in these businesses. The real-time availability of invoice data helps these companies achieve better cooperation with vendors, suppliers, and B2B customers, improving business relations with these stakeholders.
• For large businesses—large companies with multiple tiers of vendors, suppliers, and related-party transactions—the IMS dashboard offers better control. By providing an additional layer of reconciliation between invoices and GSTR-2B, keeping data in sync and reporting have become more challenging than ever before.

The Future of GST Compliance with IMS

Any CFO or finance manager will agree that the primary reasons behind tax and legal non-compliance are often inadvertent human errors in data entry, processing, and return filing. Suppose businesses continue outsourcing their GST reconciliation or using spreadsheets for manual reconciliation due to a lack of synergy in their data handling applications. In that case, the introduction of IMS adds a new layer of complexity, making managing compliance more challenging than ever before.
Currently, the GST portal flows invoices and other supply-related records to the IMS once suppliers save records or file their GSTR-1. In the future, the GST portal may enable seamless integration of data emerging from the IMS with organisation-specific ERPs and auditing applications. It might help integrate enterprise AI/ML tools in their compliance process for mitigation and prevention of compliance issues.