Invoice Management System (IMS): Streamlining ITC Claims Through Automated Invoice Processing

Starting from October 1st, 2024, taxpayers will have access to this new functionality on the GST portal – the Invoice Management System (IMS). The IMS is designed to simplify the Input Tax Credit (ITC) process by allowing recipient taxpayers to validate invoices issued by their suppliers, ensuring that only verified invoices become part of their form GSTR-2B.

This new system will greatly enhance the accuracy of ITC claims by enabling taxpayers to accept, reject, or defer invoices. The IMS is poised to significantly reduce errors and improve the overall efficiency of GST compliance for businesses of all sizes. Here’s a detailed look at how the IMS will benefit taxpayers and transform the ITC landscape.

What is the Invoice Management System (IMS)?

The IMS is a newly developed functionality by GSTN that provides taxpayers with the ability to manage invoices more effectively. It allows recipients to review and take action on invoices issued by suppliers before these become part of their GSTR-2B and ITC claims. With IMS, recipients can accept, reject, or keep an invoice pending, ensuring that only genuine invoices are reflected in their ITC.

How the Invoice Management System Works

Once a supplier saves any invoice in their GSTR-1, Invoice Furnishing Facility (IFF), or GSTR-1A, it will be reflected on the IMS dashboard of the recipient. Taxpayers can then take the following actions:

Actions taken by the buyer	Impact on the ITC of the buyer
Accept	Table 4 will show the value of only those invoices which are accepted by the buyer and are a part of their GSTR 2B.
Reject	Rejected invoices will not be considered for GSTR-2B or ITC claims.
Pending	Taxpayers can defer the action and review invoices later. However, invoices cannot remain pending beyond the timelines set under Section 16(4) of the CGST Act.

If the recipient takes no action, the invoice will be deemed accepted and moved to the GSTR-2B as part of the eligible ITC. However, if any amendments are made by the supplier before filing GSTR-1, the amended invoice will replace the original on the IMS dashboard.

If a supplier makes amendments after filing GSTR-1 through GSTR-1A, both the original and amended invoices will be visible in the Invoice Management System (IMS). For the current month, the buyer can claim Input Tax Credit (ITC) based on the original invoice. ITC on the amended invoice can only be claimed in the subsequent month, provided the buyer accepts it. However, the buyer must first take action on the original invoice before acting on the amended one.

Important Note for Suppliers:

Invoice Action Visibility
Suppliers can view the actions taken by buyers on their invoices directly through the portal.
Handling Rejected Invoices
If an invoice is rejected by the buyer, the supplier can correct it before submitting GSTR 1. If GSTR-1 has already been filed, amendments can still be made through GSTR-1A.
Note: If a buyer has rejected the invoice because it belongs to some other GSTIN, then the amendment can be made in the GSTR 1 of subsequent month.
Pre-GSTR-1 Filing Check
Suppliers should verify the actions taken by buyers on invoices before filing their GSTR-1 to ensure that necessary adjustments are made.
Post-GSTR-1 and Pre-GSTR-3B Adjustments
Even after filing GSTR-1 but before filing GSTR-3B, suppliers must review buyer actions and make any necessary corrections via GSTR-1A to ensure accurate tax liability.
Credit Note Rejection: If a buyer has rejected a credit note, then the liability will be added in the subsequent month GSTR 3B.

Key Benefits of the IMS for Taxpayers

Enhanced ITC Accuracy
The IMS ensures that only verified and accepted invoices are included in the GSTR-2B. By allowing businesses to scrutinize their invoices before ITC is claimed, the system reduces the risk of errors and prevents fraudulent claims. Rejected invoices will no longer contribute to ITC, further ensuring the accuracy of tax compliance.
Reduced Administrative Burden
The automation provided by the IMS reduces the manual effort required to verify invoices and claim ITC. The system’s real-time features facilitate quicker and more accurate reconciliation of records, significantly lowering the compliance burden on businesses. For example, smaller businesses, especially those under the Quarterly Return Monthly Payment (QRMP) scheme, will find the system particularly useful for ensuring compliance with minimal manual intervention.
Flexibility in Handling Invoice Discrepancies
Taxpayers will have the flexibility to defer or keep invoices pending for further review. This allows more time for businesses to match invoices with their records and coordinate with suppliers if discrepancies arise. The system thus minimizes disputes between suppliers and recipients.
Transparency and Better Communication
Suppliers will also benefit from the IMS as they can track the actions their recipients have taken on invoices. This transparency promotes better communication between suppliers and recipients, fostering a more efficient system of addressing invoice discrepancies.
Seamless Invoice Reconciliation
One of the standout features is the ability to reconcile invoices between recipients and suppliers, streamlining the process of resolving discrepancies and enabling accurate ITC claims. This system will prevent mismatches in invoice details, which is a common cause of disputes during audits

How IMS Integrates with GSTR-2B and GSTR-3B

The IMS plays a crucial role in streamlining the GSTR-2B generation process. A draft GSTR-2B will be available on the 14th of each month, based on the actions taken by the recipient on invoices reflected in the IMS. However, recipients can continue to act on invoices even after GSTR-2B is generated, up until they file GSTR-3B for the month. If GSTR 2B is generated and the buyer takes an action other than accepted, then the buyer needs to compute the GSTR 2B again.

Once GSTR-3B is filed, all accepted and deemed accepted invoices will be moved out of the IMS dashboard. Pending invoices, however, will remain on the dashboard for future action but cannot be carried forward beyond the prescribed time limit as per Section 16(4).

NOTE: The current time limit is 30th November 2024.

QRMP Taxpayers

For buyers who are under the QRMP scheme, IMS will generate GSTR-2B on a quarterly basis. If the supplier is under the QRMP Scheme and the buyer is not, then the buyer can take action on a monthly basis for ITC. However, the supplier has to file a timely IFF. Invoices saved through the IFF will flow into the IMS and follow the same process of acceptance, rejection, or deferral.

Sequential GSTR-2B Generation

Importantly, GSTR-2B for QRMP taxpayers will be generated sequentially, ensuring that the previous period’s GSTR-3B must be filed before the next period’s GSTR-2B is generated. This is applicable for monthly filers as well.

Conclusion

The Invoice Management System is set to revolutionize the GST compliance process by offering a more streamlined, automated, and flexible way for businesses to manage their ITC claims. By enhancing accuracy, transparency, and efficiency, IMS reduces the compliance burden while providing greater control over invoice management. With this new functionality, the GST ecosystem will become more robust and user-friendly, benefiting taxpayers across the board.

As this new system comes into effect on October 1st, 2024, businesses should familiarize themselves with its features and processes to fully leverage its benefits.

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