MSMEs fear ₹1.5 lakh annual burden as India rolls out new GST Invoice Management System

NEW DELHI : The government is all set to roll out the newly proposed and designed Invoice Management System (IMS) under the Goods and Services Tax (GST) framework, but the industry, especially the MSME (Micro, Small and Medium Enterprises), doesn’t seem to be excited enough.

Rather, they fear that the new system would mean a huge compliance burden, and this could lead to an additional cost for them, making it unaffordable.

According to the India SME Forum (ISF), IMS could mean an additional 1.5 Lakhs per year as Cost of Compliance only due to the adoption of the IMS system.

India SME Forum (ISF), which claims to be the country’s largest non-governmental organisation for small and medium enterprises, has urged the government to reconsider the timeline for the implementation of IMS under the GST framework.

Noting the significant operational and financial challenges faced by MSMEs in integrating IMS, the forum is calling for a phased implementation for transition to ensure small businesses can adapt without financial or operational distress.

“Since its introduction in 2017, GST has played a transformative role in formalising the Indian economy, increasing transparency, and streamlining tax compliance. The IMS, introduced as an extension of the GST system, aims to eliminate Input Tax Credit (ITC) mismatches by ensuring real-time invoice reconciliation,” ISF said.

It added that the current system mandates monthly IMS activities within a narrow window, requiring businesses to reconcile invoices before GSTR-2B generation. The tight timeline, especially for credit notes which cannot be deferred, poses challenges necessitating meticulous coordination until the filing of GSTR-3B

Rather, the India SME Forum has recommended a phased IMS implementation similar to the e-invoicing transition, with a six-to-twelve-month window that allows businesses adequate time to adapt.

Supplier-side visibility must be improved with faster API rollouts and a supplier dashboard that facilitates bulk document retrieval and easy reconciliation. The government should also provide flexibility in handling disputed invoices, allowing businesses to keep them in abeyance rather than forcing an immediate tax liability.

By refining implementation strategies and engaging in structured consultations with industry stakeholders, policymakers can ensure that IMS strengthens the GST framework without placing undue burdens on MSMEs.

Further commenting on the IMS rollout and talking about the expected challenges, Vinod Kumar, President, India SME Forum, said, “While, the objective of IMS is well-intended, the rapid rollout has left MSMEs struggling with infrastructure limitations, inadequate software readiness, and compliance hurdles. The businesses are looking at an additional expense of ₹1.5 lakhs per annum to ensure they are compliant. Hence, a reasonable transition period is critical to align their processes, to ensure that compliance measures do not inadvertently hinder the growth of small businesses.”

The industry estimates suggest that over 75% of MSMEs face challenges in adapting to digital compliance requirements, while 95% of small businesses feel they require additional time and resources to integrate IMS into their existing workflows.

MSMEs, often lacking advanced digital infrastructure and dedicated tax teams, are particularly vulnerable to the challenges posed by IMS. The short reconciliation windows, increased compliance burden, and risk of input tax credit denials could strain their cash flows and disrupt operations.

The forum aims to inspire capable SMEs with the potential to become world-class enterprises and provide them with a platform to connect with partners, investors, and collaborators for long-term growth. It has also highlighted key challenges that the new system will bring, particularly for the MSME sector. These include:

• Limited Preparation Time: The GST Network (GSTN) advisory on September 3, 2024, announced the IMS rollout starting October 1, 2024, giving businesses little time to upgrade systems and train personnel.
• Technical Challenges: Key API functionalities for invoice reconciliation were delayed until mid-October, hampering integration efforts. Supplier-side dashboards, essential for tracking ITC claims, were only enabled on November 13, 2024.
• Operational Disruptions: MSMEs that rely on basic accounting tools face significant financial and compliance risks due to the sudden shift. The absence of bulk upload utilities and offline reconciliation tools further complicates adoption.
• Immediate Credit Note Action: IMS mandates recipients to either accept or reject credit notes immediately, with no option to defer action for supplier reconciliation. This could result in undue financial burdens on suppliers due to increased tax liabilities and interest payments.
• Transaction Volume Constraints: The GST portal currently limits supplier view and download actions to 500 documents at a time. This restriction significantly hinders businesses with high transaction volumes, leading to operational inefficiencies and delayed invoice processing and compels businesses to subscribe to GSPs to manage this compliance.

India SME Forum has conducted various nationwide initiatives and programmes in the past nine years for innovative and disruptive Small and Medium Enterprises across India. It consists of over 98,200 MSMEs as direct members, including more than 9,400 Women Entrepreneurs and 12,36,000 MSMEs as subscribers across 19 State Chapters.