Simplify Your GST ITC Claims: IMS Introduces Intelligent Credit Note Management

Effective as of October 2025, the Goods and Services Tax Network (GSTN) has added an Intelligent Credit Note Management function to the Invoice Management System (IMS). This feature gives taxpayers the ability to keep a credit note open for one GST period and report the actual amount of Input Tax Credit (ITC) reversal. This feature will resolve significant reconciliation difficulties that have been occurring since the implementation of GST.

Three Revolutionary Features

The recent update contains three main functionalities that allow taxpayers more control of the ITC claim process and credit note management.

1. Pending Credit Note Option: Now you can mark a credit note "Pending" for the GST period and verify transactions before deciding on what to do. Taxpayers will have one month to do this if they are monthly filers or one GST quarter if they are quarterly filers. By filing GSTR-3B next, taxpayers will need to accept or reject the entries, or they will be deemed as accepted. The Pending Status can apply to credit notes, increasing value credit notes, decreasing value credit notes that were previously rejected, and decreasing value invoices/debit notes that have already been accepted.

2. Flexible ITC Reversal: The ITC will be adjusted accordingly if the taxpayer never received an input credit in that invoice. The ITC reduction question when accepting credit notes is now a critical process for taxpayers. Taxpayers can respond to this question with a "No" if the full amount of the input tax was not previously claimed, or a "Yes" if they are looking to reduce the amount that was previously claimed with either a full or partial reduction of ITC. This change eliminates the automatic reversal of entire ITCs based on auto-generated statements, reducing the number of times taxpayers may have been required to reverse excessive amounts of ITC based on an auto-generated statement that were not truly utilized in order to protect their capital flow.

3. Communication Through Remarks: Taxpayers will now have the opportunity to provide additional information about the reasons they are rejecting records and remain pending. Through this addition of a comment section, they will have a platform to allow open, honest, two-way communication with their recipients. Transparent two-way communication will also expedite the resolution of disputes between clients and their suppliers.

Section 38 of the CGST Act, 2017 has removed the term "autogenerated statement" and now states that the GSTR-2B will be re-processed based on the taxpayer’s actions as they use IMS. Section 39(1) allows for further clarification as it provides the authority for any conditions or restrictions for taxpayers when filing a GSTR-3B.

Prospective Application

Changes will apply to documents based on when those documents appear in GSTR-2B and not when they were originally created. A credit note dated September 2025 filed in the October GSTR-1 will appear in the October GSTR-2B with new features available. Credit notes that are filed in the September GSTR-1 and appear in the September GSTR-2B will not have those options available to them. The generation date of the GSTR-2B and not the document date is critical in determining the outcome.

GSTN Advisory Clarifying Misconceptions

An advisory released on October 8, 2025, by GSTN Advisory no: 628 advised that there were many misconceptions associated with the update of the IMS. This advisory clarified that claims for ITC would continue to be auto-populated into the GSTR-3B based on the GSTR-2B, that the GSTR-2B would continue to be generated automatically on the 14th of each calendar month, that actions taken in the IMS were not mandatory, and that inaction in this regard would be deemed as acceptance, and that if a taxpayer took action on the IMS prior to filing their GSTR-3B, they would have the option to regenerate their GSTR-2B and include it in their GSTR-3B.

The implementation of the IMS enhancement, effective in October 2025, represents a major advancement in streamlining the ITC claim and credit note reconciliation process. The introduction of a Pending option, the ability to declare flexible ITC reversals and the ability to record comments will improve the level of communication and help alleviate the operational challenges faced by businesses for so many years.

To benefit from these new features, businesses must commit to providing adequate training, redesigning current processes, and executing them consistently and with discipline. With a focus on the new features, businesses will also benefit from a cleaner compliance environment, reduced burden from reconciling, improved use of working capital and a significantly lower risk related to an audit. Businesses that take advantage of this opportunity and enhance their GST compliance framework will be in a better position to compete due to their proactive usage of the available features.

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