Section 194N Exemption for Foreign Representations: Key Highlights of the New Income-Tax Notification

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  On 28th November 2024 , the Ministry of Finance issued Notification No. 123/2024 , bringing clarity to the applicability of Section 194N of the Income-tax Act, 1961. The notification exempts specified foreign representations from the provisions of this section, reinforcing India's commitment to international diplomatic norms and global cooperation. Effective from 1st December 2024 , this move comes after due consultation with the Reserve Bank of India (RBI) and aligns with international protocols such as the Vienna Convention and the United Nations Privileges and Immunities Act . Understanding Section 194N of the Income-tax Act Section 194N mandates tax deduction at source (TDS) on cash withdrawals exceeding ₹1 crore in a financial year . The provision applies to withdrawals from banks, co-operative banks, and post offices, aiming to curb cash usage and promote digital transactions. Fifth Proviso to Section 194N The fifth proviso grants the Central Government the authority ...
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Understanding the New Invoice Management System (IMS) on the GST Portal: A Guide for Taxpayers

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Introduction

The Goods and Services Tax (GST) system in India has introduced a significant new tool on the GST portal: the Invoice Management System (IMS). Launched in October 2024, IMS offers taxpayers enhanced control over invoice records and allows them to validate input tax credit (ITC) with greater ease. However, as this is a new functionality, there may be some challenges during its initial phase. This article serves as a detailed guide to understanding IMS, its role in the GST filing process, and essential advisory tips to avoid common errors and ensure accurate input tax credit management.

What Is the Invoice Management System (IMS)?

The Invoice Management System (IMS) is a new, optional tool on the GST portal. It allows taxpayers, especially recipients of goods and services, to take specific actions on invoices/records furnished by suppliers. These actions include:

  • Accepting an invoice
  • Rejecting an invoice
  • Keeping an invoice pending

Once an action is taken on IMS, it influences the recipient's GSTR-2B, which is a monthly auto-drafted statement of input tax credit. These updates occur on the 14th of the subsequent month. Essentially, IMS serves as a validation platform that helps recipients control which invoices contribute to their tax credit, thereby facilitating more accurate reporting in GSTR-3B.

How Does IMS Impact GSTR-2B and GSTR-3B?

The actions performed by a recipient on the IMS play a crucial role in the preparation of the GSTR-2B statement and GSTR-3B return:

  1. GSTR-2B Generation: Based on the actions taken on IMS (accept, reject, or pending), the recipient's GSTR-2B is generated. Only accepted invoices contribute to the input tax credit available to the taxpayer.
  2. Auto-Population in GSTR-3B: Liability and input tax credit data are auto-populated in the recipient’s GSTR-3B, based on the data in GSTR-1/1A and the GSTR-2B report.

However, taxpayers still have the flexibility to edit these auto-populated figures in their GSTR-3B before filing to correct any discrepancies.

Initial Challenges During IMS Implementation

Since IMS is a newly implemented feature, taxpayers may encounter initial challenges, such as:

  • Mistakes in Actions on IMS: Recipients might accidentally choose the wrong action on IMS, such as rejecting an invoice instead of accepting it. This could lead to incorrect ITC data in GSTR-2B and subsequently in GSTR-3B.
  • Potential Errors in Auto-Populated Data: Incorrect actions on IMS may cause inaccurate ITC or liability data to auto-populate in GSTR-3B, affecting the recipient’s tax obligations or credit claims.

In response to these issues, GST authorities are encouraging taxpayers to review and, if necessary, correct their actions on IMS to ensure accurate reporting.

Steps to Correct Actions on IMS

To mitigate the impact of initial challenges, taxpayers can take the following corrective actions on IMS before filing their GSTR-3B:

  1. Review and Modify IMS Actions: Taxpayers can change the action taken on an invoice, such as switching from “rejected” to “accepted” or vice versa, until GSTR-3B filing. This flexibility allows for the correction of any inadvertent mistakes.

  2. Recompute GSTR-2B: After correcting actions on IMS, taxpayers can recompute GSTR-2B to reflect accurate ITC data. This step ensures that only eligible ITC is transferred to GSTR-3B, avoiding discrepancies.

  3. Edit Auto-Populated Data in GSTR-3B: If errors persist in the auto-populated ITC or liability figures in GSTR-3B, taxpayers are advised to manually adjust these entries based on actual records. This helps avoid potential compliance issues or penalties due to incorrect filings.

Best Practices for Using IMS Effectively

Taxpayers should adopt the following best practices to ensure smooth use of IMS and accurate GST filings:

  1. Verify Invoices Before Taking Action: Cross-check invoice details with accounting records before accepting, rejecting, or pending any invoice on IMS.

  2. Monitor Auto-Populated Data in GSTR-3B: Even after correcting actions on IMS, review the auto-populated details in GSTR-3B to confirm accuracy.

  3. Consult with Tax Professionals: In cases of complex transactions or uncertainty in actions, consulting a tax professional can help in taking the correct action on IMS to avoid potential errors.

  4. Stay Updated on GST Notices: Follow updates and advisories on the GST portal, as new guidelines or improvements to IMS may be introduced to help taxpayers during this transition.

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