New Delhi: An Indian company paying for overseas software, cloud storage or consulting services may soon have to report these transactions through a tighter goods and services tax (GST) system. It comes as the government moves to extend e-invoicing to imported services and purchases from unregistered suppliers under the reverse charge mechanism.
The proposal, recommended by the 57th GST Council, applies to businesses with an annual turnover of ₹5 crore or more. For imported services, Indian businesses already have to issue self-invoices in the applicable reverse-charge mechanism because overseas suppliers do not issue Indian GST invoices. The proposed expansion could require companies to change how they document and report these purchases.
Alongside the e-invoicing expansion, the council has proposed a mechanism to correct tax liability and input tax credit (ITC) reported in GST returns, potentially from the April 2027 return period. The revised mechanism will be placed in the public domain for a time-bound consultation, with finance minister Nirmala Sitharaman authorised to approve changes based on stakeholder feedback.
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The council said the changes would reduce differences between tax liability reported by businesses and the ITC they claim, helping reduce demand notices and system-generated intimations arising from such mismatches. The proposals could also increase compliance requirements as GST moves towards greater use of the Invoice Management System (IMS), which allows buyers to accept, reject or keep supplier invoices pending for review.
"The latest GST Council decisions signal a gradual but definite shift towards an IMS-driven compliance framework," said Saurabh Agarwal, partner, EY India. He said the changes would help businesses reconcile credit reported in GSTR-3B with credit available in GSTR-2B. For imported services, e-invoicing could standardise the self-invoicing process and strengthen the link between tax payments, return reporting and credit claims, but how invoices for imported services will integrate with IMS remains to be clarified, he added.
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Most businesses may not need to replace their existing accounting systems, but could require modifications to improve invoice validation, vendor checks and data accuracy, Agarwal said. Companies relying on manual reconciliation could face additional operational challenges. The expansion could also create reconciliation issues around credit notes, delayed supplier adjustments and ITC reversals, requiring closer coordination between procurement, accounts payable and tax teams.
"Better alignment between GSTR-1, GSTR-3B and GSTR-2B should help resolve genuine mismatches before they lead to notices or prolonged proceedings," said Mandar Telang, vice president, Bombay Chartered Accountants' Society.