Is IMS Mandatory Under GST?

The buzz around the Invoice Management System (IMS) has made many of us scratching our heads. Missing out on IMS might mess with crucial GST processes, like generating the "right" GSTR-2B. So, is IMS mandatory or optional? While waiting for the official word, let's break down why IMS is required for your business and why staying ahead of the curve could save you from future headaches.

What is IMS 

The Goods and Services Tax Network (GSTN) introduced the Invoice Management System (IMS) on October 14, 2024. This new feature allows taxpayers to manage their invoices and generate GSTR-2B, ensuring they claim the "true" Input Tax Credit (ITC). Invoice details suppliers enter in their GSTR-1 will automatically appear in the buyer's IMS. The recipient taxpayer accepts, rejects, or holds them for review there. Once the recipient accepts the invoices (or if they get deemed accepted), they will be included in their monthly GSTR-2B.

Impact of IMS on Businesses 

As we understand the different functionalities of IMS, it's crucial to understand its broader implications on businesses, transforming tasks beyond simple tax compliance into strategic advantages.

1. Enhanced Communication

IMS fundamentally changes suppliers' and recipients' interactions by facilitating seamless invoice communication through a single dashboard. This complies with GST requirements and enhances overall business relations and transparency.

2. Streamlined Tax Reporting

IMS simplifies the tax reporting process by providing a one-stop platform for managing all supplier invoices and auto-generating GSTR-2B with minimal intervention. This system cuts businesses' time and effort on tax compliance, allowing them to focus more on their primary and fundamental activities.

3. Decision Support

The summary view available in the IMS dashboard aids in better management decision-making. A clear overview of all invoices and actions taken supports strategic planning and auditing, proving its value beyond simple tax management.

4. Flexibility in Invoice Management

For suppliers, the ability to amend invoices quickly through GSTR-1A adds a layer of flexibility. This allows them to correct errors and update information swiftly, ensuring the financial documentation accurately reflects the latest business transactions.

With a clear understanding of how IMS enhances business operations and compliance, let's explore the latest developments from the 55th GST Council Meeting, which introduced key updates to this vital system.

IMS Updates From the 55th GST Council Meeting 

The 55th GST Council Meeting brought forth several critical updates to strengthen the legal framework of the IMS system.

Legal Framework for FORM GSTR-2B

• The council proposed amendments to section 38 of the CGST Act, 2017, and rule 60 of the CGST Rules, 2017.
• These changes will ensure your GSTR-2B are accurate based on your actions on the IMS dashboard.
• Why this matters: if you are not sure and reject an invoice of Rs 50,000 for wrong details, it won't reflect in your GSTR-2B and won't cause any errors in ITC. 

Reversal of Input Tax Credit

• The council has proposed to amend section 34(2) of the CGST Act, 2017. 
• If a supplier issues a credit note to adjust an overcharged invoice, the recipient must reverse the ITC for that amount. 
• This simple and smooth process will keep buyers and suppliers on the same page. 

Adjusting Output Tax Liability

• The council also suggested inserting a new rule, 67B, into the CGST Rules, 2017. 
• This rule prescribes how a supplier's output tax liability should be adjusted against the credit note issued. 
• This readjustment will help suppliers maintain accurate financial records and avoid confusion during tax filings.

Mandatory Filing of FORM GSTR-3B

• An update to section 39(1) and rule 61 says you can only file GSTR-3B after GSTR-2B for the same period is available. 
• This way, tax filing data will be fully reconciled and verified before filing to reduce mistakes and mismatches.

Is It Mandatory to Adopt IMS?

IMS is not currently mandatory under the GST system, but with the above legal foundations in place, one can say it is becoming mandatory.

Also, with features like automatic 'deemed accepted' status for unresponded invoices, it becomes mandatory for recipient taxpayers to check and take the required actions because failing to do so can lead the incorrect invoices be a part of their GSTR-2B and eventually in their GSTR-3B.

Moreover, with the advisory on the hard-locking of auto field sales value in GSTR-3B fields in place, one can only expect the government to bring in the advisory on the hard-locking of ITC fields shortly. And once that happens, taxpayers will not have an option but to take action on IMS.

So, looking at the current scenario, it is obvious why companies should consider adopting IMS early before it starts to hamper their operations. 

Consequences of Not Adopting IMS

If IMS becomes mandatory in the future, ignoring it could lead to several significant issues, such as:

1. Complications with GSTR-2B Generation

If you're not using IMS, it can disrupt the auto-generation of GSTR-2B required to claim input tax credits leading to blocking of eligible ITC and impacting working capital.

2. Higher Compliance Risks

Ignoring IMS opens the door to 'deemed accepted' invoices. What's that? This means the portal could automatically accept unverified invoices, even if they are wrong or fake. That's a clear road to audit penalties and a damaged reputation. Imagine claiming Rs 50,000 in ITC just because you didn't take any action!

3. Operational Disruptions

Let's say IMS suddenly becomes mandatory, and your team is unprepared.  Greater alignment is required across internal teams—specifically procurement, finance, and stores—to validate vendor actions and ensure timely adjustments. Not doing so can lead to huge human errors and might require you to spend extra on consultations to fix the chaos. 

Who doesn't like to have a safety net for their business? Even if IMS is not mandatory right now, adopting it early would be smart to keep your business safe from unwanted compliance risks and operational disruptions. Why wait for trouble when you can avoid it altogether?

Read more:
FAQs on Invoice Management System (IMS) in GST
Invoice Management System (IMS) Process Flow
What Is Rejected Invoices in IMS Dashboard with Example?
What are the pending invoices in the IMS Dashboard?
What is Approved Invoices in IMS Dashboard