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Does matching your purchase transactions with GSTR-2B feel like a monumental task in the current process? For several businesses, it takes multiple days of manual reconciliations, clarifying inter-vendor misunderstandings, and overly drawn-out matching processes with incomplete transactions and delays, along with numerous back-and-forth calls with vendors attempting to clarify discrepancies. It is a tiresome, unproductive, highly inefficient process filled with mistakes. If there is a mismatch
An Invoice Management System (IMS) changes all that – what used to be a long convoluted task can be done in just a few clicks. This is not only a new app but rather a whole smart technology that is quicker and more precise when it comes to managing GST compliances throughout the workflows.
IMS gives you the entire list of invoices supplied by your vendors on the IMS portal, making the process of Input tax credit (ITC) reconciliation effortless. Even better, IMS has multiple ways that allow you to review and protect your ITC in a timely manner. Acceptance, Rejection and Pending are the three action options provided on the portal by the IMS. With these options, an invoice can be accepted or rejected. Marked pending invoices are those which need further clarity, allowing you to return to them later for a decision on acceptance or rejection.
In attempting to refine the invoice management system concerning ITC and return filing, IMS aims to provide support in a holistic dependency. To explain this better, we will take you through the process of claiming ITC, the steps with IMS, and the endpoint.
Current Practice
Let us define current practice. Current practice relies heavily on GSTR 2B for the purposes of ITC calculation. IMS, let us look at the process that substitute seeks to change:
Step 1: Obtain GSTR-2A/2B
With the supplier’s filling of GSTR-1 or invoice uploading through IFF(Invoice Parsing Facility), invoices show up on the taxpayer’s GSTR-2A. Every month on a two week system run, GSTR-2B gets generated. It is a static version of the total ITC available.
Step 2: Comparison of GSTR-2A with purchase registers
This is quite a robust control mechanism and unfortunately, is quite outdated. Every single invoice has to be matched with the purchase register and GSTR-2B. In the event of invoices being uploaded incorrectly or in case an invoice is held on pending ITC claim, there has to be an adjustment reversal entry done to get the right ITC.
Step 3: ITC claim on GSTR-3B
Buyers with cross matching invoices and reversal adjustment claims accepted ITC as per the best practice guidelines.
Through the methods below, IMS aims to simplify the above processes:
ITC Processing Before and After IMS implementation:
To enable comprehending the new practice with IMS in GST, consider these examples.
Scenario | Current Practice (without IMS) | New practice (with IMS) |
Supplier uploads sales but ITC is ineligible (Ex: Staff welfare expense, Purchase of motor vehicle, food/transport/stationery bills etc.) | As in the case with most purchases, such ITC gets auto-populated from GSTR-2B to GSTR-3B and needs to be reversed. Additionally, in accounting, these expenditures are classified as expenses, meaning that extra adjustment reversal entries are needed for portal purposes. | Reject such invoices in IMS and such invoices will not get auto-populated in GSTR-2B/GSTR-3B. As a result, no reversal entry is needed for return filings. Note: GSTN recommendation is to still ‘Accept’ such invoice and reverse ITC. |
Receive a purchase in GSTR-2B that does not belong to me (wrongly updated by supplier against my GSTIN) | Such ITC gets auto-populated from GSTR-2B to GSTR-3B. This requires an adjustment entry to reverse auto-populated ITC. | Reject such invoices in IMS, so these will not get auto-populated in GSTR-2B/GSTR-3B. This change will eliminate the need to record amortization reversal entry in the books. |
Capture a purchase in GSTR-2B but it is mismatching from books For example, books has Rs 1000 ITC but the supplier uploaded as Rs 500 tax. | Offline, notify the supplier to amend the invoice for the prior period and re-upload it for subsequent periods. Reverse Balance ITC of 500 and eventually claim it when the supplier amends it to 1000. | Mark the invoice as ‘Pending’ in IMS. These invoices do not auto-populate in 2B/3B and do not require reversal. |
Supplier issues a wrong credit note (Sales return) and reduces his liability | These appear as purchase returns, thus automatically increasing my ITC, so capped loss. | Mark those Credit notes as ‘Rejected’ in IMS, which leads to no risk to ITC. |
Supplier uploaded sales, but purchase not entered in books (goods not yet received). | Such ITC is auto-populated in GSTR-2B to GSTR-3B assuming the entity intends to claim it and no reversal entry is recorded. At a later time, when purchases are recorded in the books, reclaim the ITC that was previously revoked. | Mark those invoices as ‘Pending’ in IMS. These invoices will not be fetched in 2B/3B and no need to reverse. Thereafter endorse the claim when the supplier makes the necessary changes. |
The available actions for buyers in the IMS portal will support the practice of accounting reversals. Currently, all purchases are reflected in both 2B and 3B. The expectation is set that the buyer will reverse credits that are ineligible, for instance, credits relating to ITC such as staff welfare expenses, non-business expenses, and incorrect invoices.
In IMS, buyers have the freedom to ‘Reject’ invoices that are misallocated or ineligible for ITC, thus removing the additional step of ITC reversal in GSTR-3B. Moreover, due to IMS’s real-time visibility, buyers are able to identify discrepancies early along with the potential ITC at Risk. This allows adequate supplier follow-up, thus enabling timely remediation.
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