GST’s grand invoice vision hits reconciliation wall: Taxpayers grapple with compliance overload

The new invoice management system under the GST regime, designed to eliminate unbilled transactions across the country, has been met with widespread criticism from taxpayers and industry experts alike. While the government aims to ease compliance burdens, several of the recently introduced measures, intended to simplify the process, have instead proven difficult to implement in practice, causing frustration among those required to adhere to them.

According to several representations that have been sent by the industry to the government, sources told CNBC-TV18 that “the system has not been well accepted by the taxpayers and thus, the industry is sending representations seeking some relaxations or delay in making it mandatory for all.”

Particularly for small and mid-sized businesses, which in turn are part of the transaction chain for the large companies as well. “These taxpayers across sectors are now struggling to keep pace with a fast-evolving framework of real-time invoice matching, shrinking reconciliation windows, and dual scrutiny from both the GST and income-tax authorities,” sources added, who are aware of such representations.

“At the heart of the issue is GST’s data-intensive design, which assumes that every supply—both sales and purchases—will be consistently reflected across a web of digital filings and databases: from GSTR-1 and GSTR-3B to Form GSTR-9, the e-invoice portal, and income tax systems like Form 26AS,” sources added.

But when put into practice, this has created what tax practitioners call “continuous matching loops,” and for businesses operating on basic accounting software, keeping all ends synchronised has become a significant operational bottleneck,” added sources citing representations.

Neha Shrivastava, Associate Partner, Indirect Tax, Forvis Mazars in India, said, “The reconciliation burden has emerged as a structural bottleneck in India’s GST regime, particularly for MSMEs grappling with real-time validations, narrow ITC windows, and cross-portal data matching. The government’s next move should be toward facilitative compliance, not just technological enforcement. A well-calibrated approach could include extending the ITC claim period under section 16(4), integrating e-invoicing, GSTR-1,2B, and 3B into a unified, user-friendly interface, and enabling a cross-platform reconciliation dashboard linking GSTN and income tax portals. Predictive nudges and pre-emptive invoice mismatch alerts can prevent errors way before they become liabilities. Today, timing mismatches are treated as intent gaps, often penalising genuine businesses. Decoupling buyer credit from supplier lapses and focusing on guided reconciliation rather than retrospective scrutiny can ease cash flow pressure and reduce friction. The GST framework has come a long way. The next evolution must balance digital rigor with operational empathy-making compliance more intelligent and not more intimidating.”

“The Invoice Management System(IMS) is a welcome step and perhaps long overdue. It will help the taxpayer in that only accepted invoices would be construed as the eligible ITC—in effect, the taxpayer can confirm the authenticity of the received invoices. It should help the department in checking evasion too. What needs to be seen is whether it adds to the compliance costs of the taxpayer, especially for the SME taxpayers. Every invoice will now need a validation of either acceptance or rejection for it to be considered for the purpose of ITC. CBIC should monitor the functioning of IMS closely and fine-tune where necessary to ensure compliance does not become burdensome,” adds Najib Shah, former CBIC chairman.

Basically, to keep each transaction reported under the new invoice management system, a GST taxpayer needs a qualified CA, simple IT infrastructure such as a functional computer system and a 24 hour internet connection, along with follow-up from the buyers and sellers to replicate the transaction in their systems as well.

Something that might sound simple and easy is definitely an additional cost across taxpayers, who are currently sitting with either manual paper bills/slips or a basic accounting system, which is not as per the prescribed invoice format by the GSTN—the IT backbone of the government in the GST regime.

Also, any discrepancies in the chain of return forms filed based on this system is believed to raise a red flag for the GST authorities to initiate an action, which will also be reflected in the income tax returns, and thus, not just the GST authorities but the income tax authorities will also investigate the same. In short, raising the risk of getting both GST and income tax notices for a taxpayer for a basic human error or discrepancy in adopting this system, sources added, citing the intent of the representations.

Reconciliation is now a full-time burden

Sample this: with over 100 to 150 B2B invoices a month for a mid-size distributor, each document must be reconciled twice or more before input tax credit (ITC) can be safely claimed. And the compliance bar keeps rising:

• The Invoice Management System (IMS) now demands near real-time confirmation of each invoice by buyers.
• Rule 88C, introduced to curb tax underreporting, automatically flags differences between outward supplies reported in GSTR-1 and actual tax paid in GSTR-3B.
• Section 16(4) of the CGST Act caps ITC claims to November 30 of the following year, compressing timelines even further.

“Taxpayers are being squeezed by a reconciliation regime that’s automated, unforgiving, and completely out of sync with the digital capabilities of most MSMEs,” said a Delhi-based tax consultant.

The three critical matching loops

Tax professionals now categorise compliance under three tightly interlinked cycles, each with its own set of risks and deadlines:

1. Outward supply loop

It starts with invoice generation and flows through e-Invoice, e-Way Bill, GSTR-1, and GSTR-3B. Errors in any stage—especially if GSTR-3B shows less tax than GSTR-1—can trigger Rule 88C notices and DRC-01B recovery actions.

2. Inward supply and ITC loop

The GSTR-2B auto-generated on the 14th of each month is frozen. Buyers have only six days to reconcile with their purchase register. The IMS system requires them to mark invoices as “Accept,” “Reject,” or “Pending”—turning what was a passive report into an interactive audit trail.

3. Annual reconciliation loop

GSTR-9 and GSTR-9C require businesses to align monthly GST returns with audited financials. Any mismatch can lead to retrospective ITC reversals and even audit objections.

New cross-checks with 26AS: Dual taxation risk rises

A particularly thorny issue is the growing overlap between GST and Income Tax data. Form 26AS, generated from TDS/TCS deductions, now captures sales data even if a business hasn’t declared those in its GSTR-1. The result: the Income Tax Department may pursue a case for undeclared income even if GST wasn’t paid, effectively putting businesses at risk of dual taxation.

With the Annual Information Statement (AIS) expanding to include GST-linked data, tax experts warn that cross-platform reconciliation is no longer optional—it’s essential.

Cash flow under strain

One of the most immediate consequences of misalignment is a freeze on working capital. Blocked ITC means higher out-of-pocket tax payments, affecting liquidity, especially in tight-margin industries. Businesses must also pay 18% interest on mismatches flagged under Rule 88C or face recovery proceedings within just seven days.

A call for reform

The GST Council and CBIC have issued a barrage of clarifications and rule changes since July 2017, but these have often added to the confusion. While large enterprises have adopted ERP-integrated solutions to keep up, MSMEs, who make up 90% of GST registrants, are increasingly overwhelmed.

Industry associations are calling for urgent relief, including:

• Longer reconciliation windows
• Simplified thresholds for minor mismatches
• Integrated GST-26AS matching tools for small businesses

Until then, taxpayers are left walking a tightrope between compliance and complexity, automation and anxiety.

Source: CNBC TV18