GST IMS Reconciliation Explained

ITC, from being a transactional benefit to compliance-driven entitlement, has evolved continuously, just as India's GST law does. It was very recently that an Invoice Management System, or IMS, came into existence, which basically altered how recipients interact with supplier invoices and how the eligibility of ITC is determined.

From the FY 2024–25 onwards, the GST IMS reconciliation is not an option. It is a statutory control mechanism that impacts directly:

1. Availability of ITC
2. GSTR-2B locking
3. Vendor compliance ratings
4. Audit exposure and litigation risk

For organizations already on SAP ERP, manual reconciliation is not scalable. This is where SAP-based GST Cockpits like SEPFUST's IMS Automation become critical.

This blog explains GST IMS reconciliation from a law, compliance, accounting, and SAP automation perspective.

What is GST Invoice Management System (IMS)?

The Invoice Management System(IMS) is a Functionality given to the taxpayers by GSTN to allow taking actions on invoices uploaded by their suppliers in GSTR-1 / IFF before such invoices flow into GSTR-2B.

Key Goal of IMS

Providing the beneficiaries with control of the ITC through the facility of taking invoice-level actions prior to the credit crystallization.

What Actions are Available to the Recipient under the IMS?

A recipient can:

1. Accept an invoice → Eligible for ITC
2. Reject invoice → Ineligible (Incorrect GSTIN, fake bill, etc.)
3. Keep Pending → Temporarily blocked until clarified

After being acted upon, these invoices impact the final ITC to be displayed in GSTR-2B.

Legal Framework Governing GST IMS Reconciliation

Relevant Sections & Rules

Section 16 – CGST Act, 2017

ITC is available only if:

• Tax invoice is valid
• Goods/services are received
• Tax is paid to the Government
• Return is furnished

IMS operationalizes Section 16(2) by validating supplier compliance upfront.

Rule 36(4) – CGST Rules

• ITC restricted to invoices appearing in GSTR-2B
• IMS ensures only accepted invoices flow to 2B

Section 38 – Communication of ITC

• IMS is the mechanism of communication and confirmation of ITC between supplier and recipient.

IMS Reconciliation vs Traditional GSTR-2B Reconciliation

"The IMS reconciliation process is therefore a form of preventive, not corrective

Real-life Scenarios for GST IMS Reconciliation

On the practical side from a CA’s experience, the following issues are faced by the enterprises:

1. Volume of Invoices

In fact, for large entities, thousands of invoices are handled monthly for different plants, GSTINs, and suppliers.

2. Errors in Supplier Master Data

Incorrect GSTIN

Wrong place of supply

3. Manual Portal Dependency

IMS actions presently demand that:

• Portal Login
• Invoice decision
• Manual tracking

This is not possible at a large scale.

4. SAP vs GSTN Data Mismatch

SAP documents invoices against:

• MIRO postings
• Vendor invoices

GSTN reflects:

• User uploads

Otherwise, the process will be prone to mistakes without

Why SAP-Based IMS Automation is so Important

For SAP-centric enterprises, IMS reconciliation has to occur in SAP, and not outside SAP.

Ideal IMS Reconciliation Flow

1. Supplier uploads invoice => GSTN
2. Invoice flows into IMS
3. Compare Invoice with SAP data
4. Auto decision (Accept / Reject / Pending)
5. Action Push to IMS
6. Input tax credit flows correctly into GSTR-2B

This is exactly what the SEPFUST SAP GST IMS Cockpit makes possible.

SEPFUST SAP GST IMS Cockpit-How Automation Works

1. IMS Invoice Fetch from GSTN

• Secure API pull of IMS Data
• GSTIN wise, time-wise
• Manual downloads are not allowed.

2. Intelligent Reconciliation with SAP

• IMS Invoices will be reconciled with:
• SAP MIRO / FB60 documents
• Vendor GSTIN
• Invoice number & date
• Taxable Value & Tax Breakup
• The taxable

Matching logic involves:

• Exact match
• Fuzzy match (invoicing numbering discrepancies)

3. Rule-Based Auto Decision Engine

It eliminates the possibility of human subjectivity

4. SAP-Based IMS Action Cockpit

Users can:

• Display IMS invoices within SAP systems.
• View reconciliation status
• Override decisions using Approval Workflow
• Ensure the audit trail continues
• Elimination of GST Portal dependence for day-to-day operations.

5. Action Push to GST Portal

• Accepted/Rejected/ Pending actions are pushed back to GSTN
• Facilitates correct generation of GSTR
• Precludes Excess or Ineligible ITC

Compliance & Audit Benefits

Insofar as a statutory audit & GST audit is concerned:

1. Effective ITC Defence

• Proof of Invoice Acceptance
• System-based decision logic
• Section 16 Compliance recorded

2. Lowered ITC Reversals

• Wrong credits blocked upfront
• No interest exposure under Section 50

3. Vendor Compliance Improvement

• Rejected Invoices identify Non-Compliant Suppliers
• Data-driven Vendor Follow-Up

4. Litigation Risk Reduction

IMS trail acts as primary evidence in:

• GST audits
• Departmental scrutiny
• ITC disputes

IMS Reconciliation & Internal Controls (ICFR Perspective)

From an ICFR/ Internal Auditing perspective:

• Automatic IMS reconciliation is an important proactive control
• Decreases risk associated with human intervention
• Enhances management reporting & MIS

The cockpit in SEPFUST

• Maker-Checker workflows
• Role-based access
• Period locking
• Complete logs

Which Entities Should Mandatorily Implement IMS Automation?

• SAP ECC / S/4HANA users
• Businesses with multi-GSTIN operations
• Manufacturing, FMCG, Pharma, Retail, Infra
• Companies frequently receiving ITC notices
• CFOs planning for zero-surprise GST Audits

IMS is the Future of ITC Governance

GST IMS is not just another GST feature — it is a shift in ITC philosophy:

From claiming credit to proving credit eligibility upfront.

Organizations that continue with manual IMS reconciliation will face:

• Credit leakages
• Operational bottlenecks
• Audit challenges

A SAP-native IMS Cockpit like SEPFUST’s transforms IMS from a compliance burden into a strategic control system.

About SEPFUST

SEPFUST provides SAP-embedded GST automation solutions covering:

• IMS reconciliation
• GSTR-2B & 2A reconciliation
• GST returns automation
• Vendor compliance dashboards

All designed by GST professionals and SAP experts for Indian enterprises.

Frequently Asked Questions (FAQs) – GST IMS Reconciliation

1. What is GST IMS reconciliation?

GST IMS reconciliation is the process of reviewing supplier invoices uploaded to the GST Invoice Management System and taking invoice-level actions—Accept, Reject, or Pending—before such invoices flow into GSTR-2B for ITC eligibility.

2. Is IMS reconciliation mandatory under GST law?

Yes. While IMS is a system functionality, its impact is statutory because only invoices accepted through IMS are eligible for ITC under Section 16 of the CGST Act read with Rule 36(4). Non-action can directly affect ITC availability.

3. How is IMS different from GSTR-2B reconciliation?

IMS reconciliation happens before ITC is generated in GSTR-2B, whereas traditional 2B reconciliation happens after ITC reflection. IMS is preventive, while 2B reconciliation is corrective.

4. What happens if an invoice is kept pending in IMS?

Invoices marked as “Pending” do not flow into GSTR-2B for ITC. Credit remains blocked until the invoice is accepted in IMS in a subsequent period.

5. Can incorrect invoices be rejected in IMS?

Yes. Invoices with incorrect GSTIN, wrong tax structure, fake uploads, or non-business transactions should be rejected to avoid wrongful ITC and future litigation.

6. What is the impact of IMS on vendor compliance?

IMS improves vendor discipline by highlighting incorrect or non-compliant invoices upfront. Rejections and pendings act as data-driven feedback for vendors to correct filings timely.

7. Is manual IMS reconciliation practical for large enterprises?

No. Manual IMS reconciliation is not scalable for organizations with high invoice volumes, multiple GSTINs, or SAP-based accounting systems. Automation is critical to ensure accuracy and timeliness.

8. How does SAP help in IMS reconciliation?

SAP provides structured invoice data through MIRO and FI postings. When integrated with a GST IMS Cockpit, SAP enables automated matching, rule-based decisions, and seamless action updates to the GST portal.

9. What is SEPFUST’s SAP GST IMS Cockpit?

SEPFUST’s SAP GST IMS Cockpit is an SAP-embedded solution that automates IMS invoice fetching, reconciliation with SAP data, rule-based Accept/Reject/Pending decisions, and direct action updates to GSTN.

10. Does IMS automation help during GST audits?

Yes. IMS automation creates a complete audit trail with invoice-level decisions, system logic, timestamps, and approvals—significantly strengthening ITC defence during GST audits and departmental scrutiny.

11. Can IMS reconciliation reduce ITC reversals and interest?

Absolutely. By blocking ineligible ITC at source, IMS reconciliation reduces reversals, interest exposure under Section 50, and penalty risks.

12. Who should implement SAP-based IMS automation?

IMS automation is highly recommended for:

• SAP ECC / S/4HANA users
• Companies with multiple GSTINs
• Manufacturing, FMCG, Pharma, Retail, and Infrastructure sectors
• Enterprises aiming for audit-ready GST compliance