An Indian company paying for foreign software, cloud storage, or consulting services is now required to declare these transactions via the Goods and Services Tax (GST) system. This decision has been made as part of the government’s effort to extend e-invoicing to imported services and purchases from unregistered suppliers under the reverse charge mechanism.
Under the 57th GST Council, the proposal was recommended and is applicable to businesses with an annual turnover of Rs 5 crore or more. Concerning imported services, Indian businesses have to issue self-invoices under the applicable reverse-charge mechanism because of the non-issuance of Indian GST invoices by the overseas suppliers.
With the expansion of e-invoicing, the council has proposed a procedure to rectify tax liability and input tax credit declared in GST returns, from the April 2027 return period. The revised mechanism will be placed in the public domain for a time-bound consultation, with the Finance Minister, Nirmala Sitharaman, authorised to approve revisions based on the feedback of stakeholders.
The Council stated that these changes would reduce the gap between the tax liability reported by companies and the Input Tax Credit (ITC) claimed by them, thereby helping to minimize demand notices and system-generated intimations arising from such discrepancies. These proposals could also increase compliance requirements, as the GST system is moving towards greater use of the Invoice Management System (IMS). This system enables buyers to accept or reject supplier invoices, or keep them pending for review.
Recent decisions by the GST Council show a gradual but definite shift towards an IMS-based compliance framework. He stated that the revisions shall support businesses in reconciling credit reported in GSTR-3B with credit available in GSTR-2B. He stated that e-invoicing could standardize the self-invoicing process for imported services and strengthen the link between tax payments, return reporting, and credit claims; however, it remains unclear how invoices for imported services will integrate with the IMS.
The majority of businesses may not be required to replace their existing accounting systems. But they are required to modify them to enhance invoice validation, vendor checks, and data precision. Companies that depend on manual reconciliation can encounter other operational issues. The expansion could create reconciliation problems related to credit notes, delayed supplier adjustments, and ITC reversals, and requires coordination between procurement, accounts payable, and tax teams.
The Vice President of the Bombay Chartered Accountants Society said, Better alignment between GSTR-1, GSTR-3B, and GSTR-2B should help resolve genuine mismatches so that they do not lead to notices or prolonged legal proceedings.
