GST AP Compliance Changes from FY22 to FY26: What Mid-Market Finance Teams Missed
GST compliance requirements for accounts payable have tightened in three distinct steps since FY22: e-invoicing was extended to companies above Rs 5 crore turnover, ITC Rule 36(4) removed the 20% provisional buffer entirely, and GSTR-2B replaced GSTR-2A as the operative reconciliation document. AP operations designed under the pre-FY23 regime carry structural compliance gaps that are not visible in day-to-day processing but surface during audit.
In our experience, most AP operations that were compliant in FY22 are not fully compliant today. This applies to any Indian company above Rs 5 crore turnover that processes B2B invoices and claims ITC, which covers the entire mid-market segment. The issue is not that teams made errors. The regulatory baseline moved three times and the AP process did not move with it.
Each change was announced, each had a compliance date, and each was reported. The problem is that regulatory updates travel through the CA and tax function. AP operations, which absorb the practical impact, rarely get a process update to match. The result is a growing gap between what the GST regime requires and what the AP system actually does.
Three regulatory changes, and what each one broke in AP
E-invoicing mandate expansion
The e-invoicing mandate began in October 2020 and the threshold dropped in stages over three years:
| Turnover threshold | Effective date |
|---|---|
| Above Rs 500 crore | October 2020 |
| Above Rs 100 crore | January 2021 |
| Above Rs 20 crore | April 2022 |
| Above Rs 10 crore | October 2022 |
| Above Rs 5 crore | August 2023 |
Each threshold drop pulled a new cohort of vendors into the mandate. A mid-market company typically processing invoices from 300 to 800 active vendors will have had suppliers crossing the e-invoicing threshold at different points across those three years. The AP team did not necessarily know which vendors crossed when.
The practical consequence: AP teams continued accepting PDF invoices, scanned copies, and manually keyed entries from vendors who were, at that point, legally required to generate an Invoice Reference Number (IRN) from the Invoice Registration Portal. Invoices without a valid IRN and QR code are non-compliant under the mandate. ITC claimed on them is at risk during assessment.
ITC Rule 36(4): the removal of provisional credit
Rule 36(4) was introduced in October 2019. In its original form it allowed AP teams to claim provisional ITC of up to 20% of eligible credit reflected in GSTR-2A, covering invoices where the supplier had not yet filed. This gave AP teams a practical buffer: if a vendor was late filing, the buyer could still claim 20% of the expected credit without waiting.
That buffer was reduced to 5% in January 2021 and removed entirely from January 2022. From that point, ITC is claimable only against what appears in GSTR-2B. No match, no credit.
For AP teams reconciling ITC at month-end, this is a process timing problem. By the time a mismatch is identified, the invoice is already posted, the payment may already be processed, and the credit has been claimed in the return. Reversing it requires adjustments across the AP ledger, the GST return, and in some cases, interest payments on the excess credit claimed.
GSTR-2A to GSTR-2B: from dynamic to locked
GSTR-2A was the original auto-populated reconciliation document. Its defining characteristic is that it is dynamic: it updates every time a supplier files, including late filings and amendments. AP teams using GSTR-2A for reconciliation were working against a document that kept changing.
GSTR-2B is generated on the 13th of each month and is locked. It reflects only invoices filed by suppliers up to that cut-off. Late filings appear in the following month’s GSTR-2B, not the current one.
The GST Council effectively made GSTR-2B the operative document for ITC claims when Rule 36(4) was amended. Claiming ITC based on GSTR-2A, which remains available and is still used by many AP teams, creates a mismatch between claimed and eligible credit. GSTR-2A will show more credit than GSTR-2B in most months, because it picks up late filings that GSTR-2B does not. Claiming based on GSTR-2A overstates eligible ITC.
The operational failure each change creates
Each regulatory change creates a distinct failure mode in AP, and each has a detectable signal.
| Regulatory change | Failure mode | Signal to check today |
|---|---|---|
| E-invoicing mandate expansion | AP accepting invoices without IRN/QR validation; ITC on those invoices is at risk during assessment | Spot-check 50 posted invoices from vendors above Rs 5 crore turnover - confirm IRN is recorded on each |
| Rule 36(4) amendment | Mismatches discovered after posting and payment; correction requires return adjustments and may attract interest under Section 50 | Ask when in the month GSTR-2B reconciliation runs - before or after posting |
| GSTR-2B as operative document | Team reconciling against GSTR-2A overstates eligible ITC; gap accumulates silently until audit | Ask which document (GSTR-2A or GSTR-2B) the AP system uses to validate ITC before filing |
For a detailed look at what auditors examine first when reviewing an automated AP environment, see what auditors look for first in automated AP environments.
Whether FY22-era AP automation is still compliant
AP automation implemented in FY22 was designed against the compliance requirements of that year. It may validate invoice fields, route for approval, and post to the ERP correctly. It likely does not validate IRN and QR codes (the e-invoicing threshold was still at Rs 20 crore in April 2022, and vendor coverage was incomplete). It likely reconciles ITC at month-end, after posting, against GSTR-2A.
Four questions a CFO should ask their AP team or automation vendor today:
- Does the system validate IRN and QR code at invoice entry for vendors above Rs 5 crore turnover, or is this a manual check done downstream?
- Is ITC reconciliation run before invoice posting and payment, or after?
- Which document does the team use to validate ITC eligibility: GSTR-2A or GSTR-2B?
- When a GSTR-2B mismatch is found after the return has been filed, what is the documented process for correction?
If the answer to question 1 is “manual” or “we check occasionally,” the e-invoicing compliance gap is live. If the answers to questions 2 and 3 are “after” and “GSTR-2A,” the ITC risk is accumulating.
IQInvoice validates IRN and QR code at invoice entry - vendors above Rs 5 crore must generate IRNs via the Invoice Registration Portal - and reconciles against GSTR-2B (available on the GST portal) before posting, addressing all three failure modes at the point where they can be controlled. The full scope of IQInvoice’s GST compliance module covers these validation controls. If you want to see how this works for your vendor mix, book a demo.
For a detailed breakdown of ITC eligibility rules and how Rule 36(4) applies across invoice categories, see understanding GST input tax credit rules. For the vendor-side compliance obligations that feed into this, see the complete guide to vendor compliance under GST.
Key observations
- The GST compliance bar for AP has moved three times since FY22: e-invoicing extended to Rs 5 crore turnover, Rule 36(4) removing provisional ITC entirely, and GSTR-2B replacing GSTR-2A as the operative reconciliation document.
- Each change creates a distinct, detectable failure mode in AP: IRN validation gaps, post-payment mismatch discovery, and overstated ITC from reconciling against GSTR-2A.
- AP automation implemented before FY23 was designed against an older compliance baseline and is unlikely to address all three gaps without configuration review.
- The failure mode for mid-market companies is not intentional non-compliance but structural lag: the process did not update when the regulation did.
- Compliance risk in AP is cumulative and quiet. It does not appear in day-to-day operations; it surfaces at assessment.