What happens to input tax credit when you reject an invoice on IMS?

When you mark an invoice as Rejected on the Invoice Management System (IMS), that invoice is excluded from the available ITC tables of your GSTR-2B. It shifts to the ineligible or rejected supplies section. Consequently, the tax amount does not auto-populate into Table 4(A)(5) of your Form GSTR-3B.

Does rejecting an invoice on IMS automatically reduce the supplier tax liability?

No. Rejecting an invoice on IMS does not automatically reduce or delete the supplier's outward tax liability. The rejected invoice remains reported in the supplier's GSTR-1. To remove or reduce tax liability, the supplier must actively amend the invoice through Form GSTR-1A before filing GSTR-3B or file an amendment under Table 9 in their subsequent tax period GSTR-1.

Can a recipient change the action from Rejected to Accepted on IMS?

Yes. A recipient can change the action on any invoice on IMS from Rejected to Accepted or Pending, or use the Reset option, at any time before filing Form GSTR-3B for that return period. Once GSTR-3B is filed, the actions taken for that period become final.

When should an accountant choose Reject instead of Pending on IMS?

Use the Reject option only when the invoice does not belong to your business (wrong GSTIN entered by supplier), the supply never took place, or a duplicate invoice was uploaded. If goods are still in transit or quality checks are pending, choose Pending rather than Reject.

How does the supplier know that an invoice was rejected on IMS?

Suppliers can view recipient actions on the IMS dashboard under the Outward Supplies action report. The status will display as Rejected along with the recipient GSTIN. This information is also summarized in the supplier GSTR-1A dashboard.

IMS Reject Invoice in GSTR-2B: Rules & Consequence

What happens when an invoice is rejected on IMS?

The Invoice Management System (IMS), made operational by the Goods and Services Tax Network (GSTN), allows recipient taxpayers to take action on invoices uploaded by suppliers in Form GSTR-1, Form GSTR-1A, or the Invoice Furnishing Facility (IFF). When you select the Reject action on an inward invoice, two legal and technical events occur immediately:

Credit blocked in GSTR-2B: The rejected invoice is excluded from Table 4(A) (Available ITC) of your generated GSTR-2B. Instead, it is routed to Table 4(B) or the rejected supplies annexure, meaning zero credit flows into Table 4(A)(5) of your Form GSTR-3B.
Status transmitted to supplier dashboard: The invoice status shifts to "Rejected" on the supplier's IMS outward supply dashboard, alerting them that the buyer has disowned the document.

A common misconception among business owners is that marking an invoice as Rejected automatically cancels the invoice on the portal or cancels the supplier's tax payment liability. Under the Central Goods and Services Tax (CGST) Act, 2017, an invoice uploaded by a supplier remains part of their outward supply statement until the supplier files an amendment.

Statutory framework: Section 38 and Rule 60(7)

The legal authority for IMS stems from Section 38 of the CGST Act, as amended by the Finance Act, 2022. Section 38 provides that details of outward supplies furnished by registered suppliers are communicated to recipients in an auto-generated statement, specifying which inward supplies are eligible for input tax credit and which supplies are restricted.

Rule 60(7) of the CGST Rules, 2017 prescribes the structure and generation of Form GSTR-2B. Under the IMS mechanism, GSTR-2B is computed based on recipient actions recorded up to the cut-off date (the 14th of the subsequent month). When a recipient records a rejection before return generation:

The invoice is treated as an inward supply not eligible for ITC in terms of Section 16(2) and Section 38.
If the recipient previously claimed ITC in a tentative return or books, no credit can be reported in GSTR-3B without triggering an automated scrutiny notice under Form DRC-01C.
The action is logged with a digital timestamp on the GST portal.

For more details on handling pending invoices on the portal, review our detailed guide on IMS pending invoices and troubleshooting steps in GSTR-2B rejected invoices fix.

Impact on supplier outward tax liability

When you reject an invoice on IMS, the supplier does not receive an automatic tax refund or tax deduction. Under Section 37 and Section 39, outward tax liability declared in Form GSTR-1 auto-populates into Table 3.1(a) of the supplier's Form GSTR-3B.

To reduce their tax liability, the supplier must take one of two procedural actions:

File Form GSTR-1A before filing GSTR-3B: Introduced under Notification No. 12/2024-Central Tax, Form GSTR-1A allows suppliers to amend outward supplies or delete erroneous records after filing GSTR-1 but before filing GSTR-3B for that month. When the supplier sees the IMS rejection, they can amend the invoice taxable value to zero or correct the recipient GSTIN. This directly adjusts Table 3.1 of their GSTR-3B.
Amend via Table 9 in the next GSTR-1: If the supplier has already filed GSTR-3B, they cannot delete the liability for that month. They must issue a credit note under Section 34 or file an amendment under Table 9A in their next monthly GSTR-1.

Worked arithmetic example: Rs 1,00,000 mistaken billing

Consider a practical scenario between a supplier (Vendor A) and a recipient (Buyer B):

Step	Action taken	Buyer B GSTR-2B	Vendor A Liability
1. Billing error	Vendor A raises Invoice INV-401 for ₹1,00,000 + 18% IGST (₹18,000) on Buyer B by mistake (wrong GSTIN).	Appears on IMS dashboard	₹18,000 reflected in GSTR-1
2. IMS action	Buyer B selects Reject on IMS before 14 October 2026.	₹18,000 excluded from Table 4(A)(5). ITC = ₹0.	Still ₹18,000 in Table 3.1(a) GSTR-3B preview.
3. Rectification via GSTR-1A	Vendor A checks IMS outward report, opens Form GSTR-1A, and corrects GSTIN to genuine customer.	Invoice permanently deleted from Buyer B portal.	Liability correctly shifted to actual customer.

If Vendor A ignores the rejection and files GSTR-3B paying ₹18,000, Buyer B suffers no tax loss because Buyer B claimed ₹0 ITC. However, Vendor A has paid ₹18,000 on an invalid supply and must issue a credit note under Section 34 to recover that output tax.

When to choose Reject versus Pending

Accountants frequently confuse the Reject and Pending options on IMS. Selecting the wrong action causes severe operational delays:

Condition	Correct IMS choice	Statutory justification
Wrong GSTIN / Unrelated invoice	Reject	Not your purchase. Retaining it in pending clutters records.
Duplicate invoice number	Reject	Supplier accidentally uploaded the same bill twice.
Goods in transit (not received by month-end)	Pending	Section 16(2)(b) requires receipt. Rejection cancels the bill; Pending defers it.
Price or quantity dispute under negotiation	Pending	Once supplier issues a debit/credit note, action can be taken.
Internal quality inspection underway	Pending	Material may be accepted after minor testing.

Reversing an accidental rejection before filing

If your accounting team accidentally marked a valid supplier invoice as Rejected on IMS, you can rectify the mistake before filing GSTR-3B:

Log in to the GST Portal and navigate to Services > Returns > Invoice Management System (IMS).
Open the Inward Supplies tab and filter by status: Rejected.
Locate the specific invoice and click the Reset or Accept radio button.
Click Recompute GSTR-2B on the returns dashboard. The GST system will regenerate your GSTR-2B within a few minutes, pulling the invoice back into Table 4(A)(5) for ITC availment.

How gstr2bmatch.in protects your reconciliation

Manual reconciliation across hundreds of monthly supplier invoices makes tracking IMS statuses prone to human error. With gstr2bmatch.in, your GSTR-2B and purchase register files are read in your browser and never uploaded to any server. You can instantly spot discrepancies between your purchase ledger and GSTR-2B before locking your choices on IMS.

Summary of best practices

Always notify your supplier in writing when you reject an invoice on IMS so they can file Form GSTR-1A or issue a credit note immediately. Maintain documentation supporting every rejection (such as purchase order verification or wrong GSTIN proof) to present during future department audits.

Related guides

IMS action on amended invoices: how supplier GSTR-1A changes reset your GSTR-2B
IMS pending invoices: supplier credit rating and GST impact
IMS reset action and recomputing GSTR-2B: timing rules and portal workflow
IMS recipient invoice acceptance risk when supplier fails to pay tax