So in my case, my apps were already submitted and approved before I added IAP to them. That’s why I am probably not the best person to direct you in this case.
But it seems unlikely that Apple would want to make developers go through submitting an app, submitting an IAP, and then being able to test it. That hardly makes sense at all. For either a developer or for Apple. But there does seem to be some confusion over this. But from what I have seen from posts from developers who have gotten this to work is that no, your app does not need to be approved to test.
With that said, some people said you needed to submit a binary, then reject it yourself, then you could test. Not sure if that is accurate or not.
I am working on a new app now and will likely be going through process, so hopefully will have first hand knowledge soon enough.