An optional, online system to reconcile transaction details for availing GST credit may soon be made mandatory, according to two persons aware of the development.

The invoice management system or IMS was introduced last October by the Goods and Services Tax Network (GSTN), the company that processes tax returns. It seeks to resolve the issue of businesses not getting tax credits because of either the seller not uploading the invoice in the GST portal or entering wrong details.

“IMS will be made compulsory at some point in future, starting with large business transactions above a monetary threshold to be specified,” one of the persons cited above said on condition of anonymity. “Eventually, depending on the outcome and feedback from businesses, it could be made applicable to comparatively smaller transactions as well.”

The second person cited above, who also requested not to be named, said that this would prompt businesses to engage with sellers to ensure they upload transaction details correctly and on time, thus influencing the supply chain to ensure compliance.

To be sure, when the government had introduced an e-invoicing system from 1 October 2020 for reporting of B2B transactions (this is different from IMS), initially transactions higher than ₹500 crore were only covered, to allow businesses to adapt smoothly. Eventually, the threshold was lowered to ₹5 crore from 1 August 2023.

Making IMS mandatory would give tax authorities real-time transaction data, check tax evasion, improve GST audits, and make it difficult for businesses to under-report sales, according to experts.

Queries emailed to the finance ministry and to the GST Secretariat on Wednesday seeking comment remained unanswered at the time of publishing.

How IMS works

As per the IMS system, the GST portal allows sellers to upload invoices and the respective buyers to accept, reject or keep them in pending.

Accepted invoices, and those on which no action is taken, are fed into the purchase return form of the buyer. If the seller makes changes to the invoice uploaded already, that is also recorded in the purchase details of the buyer.

Why mandatory IMS is needed

IMS allows a more interactive approach for the buyers to manage their invoices on a dashboard, and reduces the risk of their tax credit claims getting rejected.

To be sure, while there is no data available about tax credit rejections, it has been a perennial problem for businesses. Buyers claim that sellers do not pay the indirect tax collected from them, to the government and file returns on time, leading to rejection of buyers’ tax credit claims.

On the other hand, government officials say they cannot honour buyers’ claims for tax credit when they have not received the same from the sellers in the first place. Besides, false tax credit claims and use of shell companies to issue fake invoices have been challenges for the government.

This January, the Centre and states together collected ₹1.71 trillion in GST revenue receipts after adjusting for over ₹23,800 crore of refunds given to businesses. So far this financial year up-to January-end, the Centre and states have collected ₹16.16 trillion in GST after adjusting for refunds, an 8.7% improvement over the revenue receipts in the same time a year ago.

Source: Live Mint