GST Council likely to approve rules for Invoice Management System to tackle fake invoicing, tax evasion

The IMS will ensure automatic reflection of invoices in relevant GST returns, allowing for real-time cross-verification of supplier data.

The GST Council, in its upcoming meeting on December 21, is set to deliberate on and is likely to approve rules for the implementation of the Invoice Management System (IMS). It is expected to address fake invoicing and tax evasion under the GST framework, sources in the Council said.

The system, which was rolled out in November, is designed to streamline invoice reporting and enhance compliance through real-time validation and cross-verification.

“We will place these rules before the Council for approval in the December 21 meeting. Rules for IMS have been prepared by the GST law committee and are on the agenda. IMS is our solution for fake invoicing. Once fully implemented, it will nip fake invoicing in the bud, preventing revenue loss,” a senior government official told Moneycontrol.

The IMS will ensure automatic reflection of invoices in relevant GST returns, allowing for real-time cross-verification of supplier data. By identifying mismatches, the system aims to minimise fraudulent input tax credit (ITC) claims, which have been a persistent issue for the GST regime.

“The system promises transparency and reduced fraudulent input tax credit claims. IMS will streamline reporting and ensure that fake invoices no longer lead to revenue leakage,” the official added.

Initial system changes enabling IMS were approved by the GST Council in its previous meeting. According to the official, the implementation has been well-received by taxpayers and experts alike.

“The proposed Invoice Management System under GST is a significant step towards curbing tax evasion through real-time invoice reporting and validation. However, its implementation brings several challenges,” Rajat Mohan, senior Partner at AMRG & Associates, told Moneycontrol.

Challenges in Implementation

A major challenge lies in integrating IMS with other GST-driven modules such as e-way bills and e-invoicing. “A cohesive compliance framework requires seamless integration of IMS with existing modules,” Mohan said.

From a technological standpoint, the stability and capacity of the GST Network (GSTN) to handle real-time reporting are critical for the success of the system. Past instances of glitches during peak filing periods underscore the need for robust IT infrastructure. Businesses, particularly MSMEs, may also face additional costs for technological upgrades and integrating IMS into their systems.

“Businesses will require detailed training to navigate the new compliance landscape. GSTN must address its infrastructure readiness and provide adequate support to ensure a smooth transition for all stakeholders,” Mohan emphasised.

With meticulous planning, IMS can emerge as a transformative tool, enhancing GST compliance while minimising disruptions for businesses across the country, according to him.

What will change with IMS 

Taxpayers now manually upload invoices while filing their GST returns. Delays or mismatches in data can occur due to manual intervention. ITC is claimed but cross-verification with supplier data is not real-time. Fraudulent claims can occur due to fake invoices being uploaded without proper validation.

Mismatches or errors between supplier and recipient data are identified after returns are filed, requiring reconciliation and amendments in subsequent returns. This process delays compliance and increases the administrative burden.

With IMS, invoices will be uploaded and validated immediately. This ensures that data is reflected in the GST system in real-time. Once invoices are reported through IMS, they will automatically populate relevant GST returns.

IMS will validate the uploaded invoices against supplier data instantly, allowing discrepancies to be flagged without any delay. Fraudulent invoices or mismatches will be detected before input tax credit (ITC) claims, reducing the scope for tax evasion.