Budget 2025: Finance Bill likely to further strengthen GST to tackle fake invoicing

Under the IMS, invoices will automatically populate relevant GST returns

The Finance Bill 2025-26 likely to be introduced in the budget session of Parliament is expected to amend the Goods and Services (GST) Act. The amendment will  incorporate the Invoice Management System (IMS) into the legal framework. Sources told Moneycontrol that the amendment aims to address revenue losses caused by fake invoicing and to eliminate tax evasion. IMS was introduced as a new feature on the GST portal in November  2024, allowing taxpayers to track invoices in real time to see which are paid and the ones pending. It was introduced to reduce errors and with the intent to reduce notices issued on account of input tax credit (ITC) mismatch in returns. The system, according to the official, has been getting an enthusiastic response. IMS continues to be optional and will remain so after the amendment to the GST Act.

"IMS as of now is not in the rule books. This amendment will bring it into the GST Act. Adding IMS without amending the GST law to support its implementation had raised doubts about its legal foundation," a senior government official told Moneycontrol.

The Central Goods and Services Tax (CGST) Rules, 2017, will also be updated to support this amendment, ensuring effective implementation of the system, government sources said.

With this amendment, several key pain points in the current GST compliance process are likely to be addressed. Currently, those under the GST net manually upload invoices while filing returns, leading to delays and data mismatches. While the manual process is error-prone, experts say that fraudulent invoices can go unnoticed until after returns are filed. With IMS, invoices will be validated in real time as they are uploaded, ensuring discrepancies are flagged immediately. The government says that IMS reduces errors and prevents fake invoices from being used to claim ITC. Bogus invoices are used to fraudulently claim ITC, resulting in significant revenue losses for the government.

In 2024, the government carried out special drives to detect fake invoicing. The GST evasion in the first drive was detected at Rs 19,500 crore, while in the second drive it stood at Rs 26,543 crore, according to government officials.

A solution to fake invoicing?

Filing counterfeit invoices has been a persistent issue in the GST framework. The government hopes that IMS will ensure automatic reflection of invoices in GST returns, enabling real-time cross-verification of supplier and recipient data. This feature will prevent fraudulent ITC claims and flag discrepancies before they result in revenue leakage, sources say.

"IMS will actually nip fake invoicing in the bud. We will not suffer revenue loss," the official cited earlier added.

Currently, taxpayers manually upload invoices while filing GST returns, which often leads to delays, mismatches and fraudulent claims. With IMS, "Fraudulent invoices or mismatches will be detected before input tax credit claims, ensuring transparency and reducing tax evasion," the official explained.

The 55th GST Council meeting recommended amending the CGST Act and Rules to integrate IMS. The proposed changes aim to provide a legal basis for the generation of FORM GSTR-2B and improve ITC.

The government hopes that under IMS, invoices will automatically populate relevant GST returns, ensuring seamless integration with the compliance mechanism. The system will also identify mismatches or errors instantly, reducing the need for reconciliation and amendments in subsequent returns.