GST Compliance India: Introduction
Imagine a leading company that is always regular in GST compliance and filing returns, but fails to distribute common ITC for services received via ISD to their branches, and triggers notices, not because of fraud, but due to the lack of awareness about the recent mandate on ISD.
GST has been evolving continuously since its introduction to become more streamlined and tech-savvy, enforcing stricter control, institutionalizing accountability, and bringing more structured and transparent compliance.
In 2025, GST compliance is not a routine return filing task but a strategic priority for tax heads and businesses to stay updated continuously to ensure their business operations and systems are aligned with the latest compliance requirements.
While businesses may face many challenges in interpreting amendments and regulating their compliance operations initially, adopting robust GST compliance practices proactively, staying updated, leveraging technology, etc., is the way to ensure their compliance requirements are met to avoid penalties, notices, and safeguard companies’ reputation and financial health.
This blog will explore all mandates and changes already mandated or will be mandated in the coming months in detail, their impact, challenges faced, and the practices businesses should follow to ensure GST compliance in India.
Compliance challenges faced by businesses in GST compliance India
Lack of clarity or interpretational issues
Complex GST laws and frequent amendments create ambiguity and interpretational issues, leading to everlasting debates and judicial proceedings unless a proper clarification is provided by the GST department. Without uniform interpretations and processes, companies within the same sector often adopt varying practices, leading to disputes.
Frequent regulatory changes
Constant amendments to GST laws, rules, and procedures make it difficult for businesses to stay updated. Though these amendments aim to streamline GST compliance requirements in the long term, initially, frequent regulatory changes can risk businesses, particularly those that do not have the bandwidth to interpret, adapt, configure their ERP, and train their teams every few weeks.
Lack of technology upgradation
The shift toward digital compliance, such as mandatory e-invoicing, IMS implementation, hardlocking of GSTR-3B, etc., requires businesses to upgrade their GST compliance system to support various reconciliations, end-to-end compliance workflow, AI/ML and data analytics for GST data insights to detect errors and optimize compliance, etc which can strain business finances particularly for SMEs.
Department Notices Handling
Businesses frequently receive notices for discrepancies in GST payment, ITC availment, errors in returns, mismatched data, non-compliance with mandates and amendments, etc. Responding to these notices requires adequate knowledge, detailed supporting documents, and timely responses, which can strain resources and manpower for prolonged disputes.
GST updates and mandates to be considered in 2025
India’s GST framework is evolving with significant updates and mandates effective in 2025, aimed at enhancing compliance, reducing tax leakages, and streamlining credit distribution. The key mandates and updates are as follows:
Amendments already made applicable
1. Input Service Distributor (ISD)
As per the Notification No. 16/2024 – CT dated 06-08-2024, the distribution of ITC and registration under the ISD mechanism are mandatory from 1st April 2025.
An Input Service Distributor (ISD) is an office of a supplier of goods or services that receives tax invoices for the input service, including those charged under RCM on behalf of a distinct person (one with a different GSTN registration but the same PAN). The ISD must register separately under ISD provisions to distribute such ITC, regardless of their regular GST registration.
Till now, ISD was voluntary, and businesses would use the ISD Mechanism or cross-charge interchangeably, following non-standard business practices. With ISD being mandatory, ITC for any third-party services received for the common use of all or more than one branch/location or unit shall be distributed through the ISD mechanism.
2. Invoice Management System
The Invoice Management System (IMS) under GST was introduced in October 2024 to ensure compliance, streamlining the reconciliation process between suppliers’ GSTR-1 and recipients’ GSTR-3B.
Currently, IMS is operational, but it is not yet mandatory. However, recommendations were made in the 55th Council meeting to update the legal framework related to GSTR-3B, ITC reversal, adjustment of outward tax liability, etc, which suggests that IMS will become mandatory.
With IMS implementation, the government will ensure auto-population of GST data and start locking GST returns such as GSTR-3B and GSTR-1 to improve accuracy and streamline compliance.
3. Case-insensitive IRN generation
From 1st June 2025, the invoice number shall be treated as case-insensitive in IRP to avoid document duplication and ensure accuracy. This means any invoice number alphabet shall be converted into uppercase before the generation of the IRN.
4. E-Invoice Reporting
From 1st April 2025, taxpayers with an Aggregate annual turnover of 10 crores and above must report their e-invoice to IRP within 30 days from the date of the invoice.
5. E-way bill amendment
From 1st January 2025, the e-way bill generation is restricted to base document no older than 180 days, and the total extension period of the e-way bill shall not be more than 360 days from the date of original e-way bill generation.
6. Multi-factor authentication
From April 1, 2025, mandatory multi-factor authentication shall be applicable for all taxpayers to access GST portals.
Amendments to be applicable in the coming months
1. Locking of auto-populated liability in GSTR-3B
From the July 2025 tax period, for which form GSTR 3B will be furnished in August 2025, the liability based on the outward supplies declared in GSTR-1/ GSTR-1A/ IFF, which is auto-populated in GSTR-3B, will become non-editable. Thus, taxpayers will be allowed to amend their auto-populated liability by making amendments through form GSTR 1A, which can be filed for the same tax period before filing of GSTR 3B.
While outward liability will not be editable from the July 2025 return filing, soon, the GST department may announce the locking of ITC details as well, making IMS a vital part of GST compliance.
Further, though, there is no official communication from the government, but looking at the flow of all these developments, the government may impose hard locking in GSTR-1 data as well, making real-time data verification and streamlined supplier-recipients communication a vital part.
2. Barred from filing GST Returns
The taxpayers shall not be allowed to file their GST returns after the expiry of a period of three years from the due date of furnishing the said return under Section 37 (Outward Supply), Section 39 (payment of liability), Section 44 (Annual Return) and Section 52 (Tax Collected at Source).
These Sections cover GSTR-1, GSTR-3 B, GSTR-4, GSTR-5, GSTR-5A, GSTR-6, GSTR-7, GSTR-8 and GSTR-9. This restriction shall apply from the July 2025 tax period.
3. Mandate on Tables 12 and 13 of GSTR-1/1A
Phase-3 of reporting of HSN codes in Table 12 of GSTR-1 & 1A as per Notification No. 78/2020 – Central Tax dated 15th October 2020 shall be implemented from the May 2025 return period. Further, table 13 of GSTR-1/1A is also being made mandatory for the taxpayers from the said tax period.
In this phase, manual entry of HSN has been replaced by choosing the correct HSN from the given drop-down. Table 12 has also been bifurcated into two tabs, namely B2B and B2C, to report these supplies separately.
Further, validation regarding values of the supplies and tax amounts involved in the same has also been introduced for both tabs of Table 12. However, in the initial period, these validations were kept in warning mode only, which means that failing the validation will not be a blocker for filing GSTR-1& 1A.
4. Pending option for Credit Notes in IMS
As per the release Note dated 13-06-02925, effective from the July 2025 period, the Pending option shall be made available in the IMS dashboard for a specified time for the following documents:
- Credit Notes
- Credit Notes amendment (except for downward amendment of CN)
- B2B Invoice, Debit note, and ECO-documents (Downward amendment only where the original B2B invoice/debit note/ECO document, respectively, is already accepted and ITC availed).
This can be a big relief for the businesses as the request for the pending option was made to the government at the time when IMS got operational. However, as per the note, this relief is for a specified period only to give businesses sufficient time to adjust and correct their records.
This update helps manage transactions better with proper communication with vendors and prevents rejection of genuine transaction amendments.
Strategic GST Compliance practice beyond return filing
While filing timely returns is vital for businesses, it is not the only compliance requirement for tax heads in 2025. Businesses must stay updated with all amendments and mandates, leverage technology, and comply with them with equal importance to avoid penalties and notices.
Here are some of the practices a business may follow to stay updated and compliant with GST.
- Build IMS-specific compliance layer
Sooner or later, IMS will become mandatory, and businesses will have no other option but to comply. Even today, though IMS is not mandatory, it is vital to take invoice action through IMS to ensure real-time validation and correct flow of ITC in GSTR-2B and later in GSTR-3B.
Further, as stated above, locking of outward liability is already mandated in the coming months. Therefore, businesses must expect freezing of ITC in the near future, making IMS important even though it is non-mandatory. Therefore, businesses must ensure IMS implementation in their GST process.
- Collaborate with tax experts
Businesses must partner with tax experts or have an internal team of tax experts to get regular updates on amendments and mandates, along with correct interpretations and advice on whether a particular amendment is applicable to them or not, to avoid confusion and non-compliance.
- Regular Internal audits
Conduct internal audits on a regular basis, scheduled quarterly or semi-annually based on the size of the business and volume of transactions, covering all regular compliance audits as well as a review of compliance with amendments.
Prepare a structured checklist aligned with GST regulations and amendments applicable to the business. Analyze all the findings, correct the errors, and maintain detailed records of the audit with evidence for future notices and government audits.
- GST training across departments
Ensure GST trainings and webinars are organized at regular intervals for employees across departments to equip them to handle GST requirements, amendments, and mandates. Circulate internal mails and newsletters on the latest trends, amendments, etc, to ensure cross-department awareness.
- Single source of truth, SOP, and standard Practice
A single source of truth with standard operating procedures ensures consistency and compliance in the workflow process. There should be an integrated GST solution for all compliance requirements, such as e-invoicing, e-way bill generation, IMS implementation, return filing, reconciliations, notice management, etc, integrated with the ERP system.
Develop detailed SOPs for key GST and notice management process, specifying steps, responsibilities, and timelines. Standardize practices across locations and departments, ensure uniformity, minimize errors, and simplify compliance management.
How is Cygnet your one-stop solution for GST compliance requirements?
Cygnet offers a comprehensive suite of tech-driven solutions to streamline the GST compliance process for all business sizes, ensuring accuracy, efficiency, and adherence to the GST compliance in India.
Cygnet’s platform automates critical processes such as GST return preparation and filing, e-invoicing, e-way bill generation, IMS implementation, ISD compliance, etc, reducing manual intervention and errors. With AI-ML-driven tools, Cygnet facilitates up to 99% compliance through features like automated 6-way reconciliations, real-time validation, and vendor invoice reconciliation to optimize ITC availment.
Cygnet’s platform seamlessly integrates with over 200 ERP systems, including SAP, Oracle, and Microsoft, enabling businesses to manage high transaction volumes while maintaining data privacy through robust security measures, certifications, and encryption algorithms.
Further, Cygnet also facilitates specific compliance challenges through modules like notice management, which retrieves GSTN portal notices and auto-drafts responses. It also uses AI to identify issues per tax laws, ensuring timely and error-free handling.
Cygnet ensures risk mitigation and time savings, achieves audit readiness for businesses, and helps them stay compliant with the continuously evolving GST law.
Conclusion
By 2025, Indian companies must focus on mastering GST compliance to manage the changing tax system, steer clear of penalties, and run their operations. Businesses can reduce risks and handle compliance better through strategic practices and the integration of advanced technology.
Using advanced tools such as Cygnet’s platform, powered by AI and ML, helps automate key tasks, improve data accuracy, and offer helpful insights for decision-making. These efforts not only protect financial stability but also build trust with stakeholders and set the foundation to grow within India’s fast-paced GST framework.
Komal Vithalani
Content Writer
Komal Vithalani, a Chartered Accountant and Commerce graduate, is a dedicated professional committed to delivering value with years of expertise in navigating the complexities of indirect tax laws. Her practical excellence includes managing perplexed litigations, dispensing tactical tax advice, conducting thorough compliance checks, supervising audits, and crafting articulate and insightful content. At Cygnet, Komal seamlessly blends her profound understanding of tax regulations with cutting-edge tax technology. Leveraging her competence, she adeptly transforms complex tax tech jargon into concise, impactful, and engaging content. This not only aids readers in comprehending tax-related topics with enlightening clarity but also ensures the delivery of narratives that resonate broadly.
