How e-invoicing will simplify the compliance landscape for Indian businesses

Over three decades ago, electronic data interchange (EDI) was used to exchange transactional data in businesses for trading, which gradually evolved with technological intervention when the companies advanced into the digital era and switched to electronic invoicing or e-invoicing.

E-invoice is an electronic authentication technique under the Goods and Services Tax (GST) framework. While there are multiple solutions, the GST Council of India has approved the implementation of ‘e-Invoicing’ by adopting “Invoice Registration Portal (IRP)” to report B2B invoices, which is registered in the departmental portal.

This will ensure businesses report B2B invoices to be registered and authenticated on GST Network (GSTN) portal. As a result, e-invoicing will help in both tracking B2B transactions as well as improving and easing GST compliance.

E-invoicing in India has already been mandated for businesses with an annual turnover of Rs 500 crore from October 1, 2020 and will be mandatory for businesses whose turnover exceed Rs 100 crore from January 1, 2021.

As per the latest data published by GSTN, around 7,500 taxpayers having turnover of more than Rs 500 crore – with more than 31,400 GST registration numbers – have uploaded around 8.5 crore invoices from October 1, 2020. Around 31,500 taxpayers with a turnover of Rs 100-500 crore need to upload B2B invoices mandatorily from Jan 1, 2021. The remaining 1.2 crore taxpayers will upload B2B invoices to e-Invoices portal from April 1, 2021.

Enabling simplified compliance

As per the latest State of Tax Justice report, India is losing over Rs 75,000 crore in tax, due to global tax abuse. Implementing e-invoice will help mitigate this tax evasion, keep track of fake invoices that are issued, and ensure a common database is available to tax authorities which will help in driving tax compliance.

Further, e-invoicing can help in bridging the gap in data reconciliation to reduce mismatch errors, and data entry errors. It will also be possible to track invoices prepared by the supplier on a real-time basis, which reduces audits by the tax authorities since the required data will be available at the transactional level.

E-invoicing will further help in addressing the concern including data reconciliation and issues that the taxpayers have been facing, since the implementation of GST. This will also help in interpretability and readability of the invoice formats, irrespective of the software that is used.

Understanding the e-invoice generation flow

Businesses of any size and scale across sectors digitise their business transactions through ERP solutions or business management software that aid them to create and manage invoices. This will continue in e-invoicing as well. However, invoices will be sent in a standard digital format to the Invoice Registration Portal (IRP).

The portal will send back a signed invoice along with an Invoice Reference Number (IRN). It will also give a QR code containing key particulars of the invoice (including IRN).

This ‘machine-to-machine’ exchange of data happens in a split second. Then the supplier issues invoice to the buyer by adding the QR code on the invoice copy. It has been specified that, where applicable, an invoice issued without obtaining IRN will not be considered a valid invoice.

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Steps to generate e-Invoice:

• Create the invoice digitally through business management software as per the standard e-invoicing format.

• Upload the digitised data on IRP provided by the e-invoice system using any one mode provided by the e-invoice system.

• The IRP will validate the generated hash/IRN attached with JSON (if uploaded by the supplier) or generate an IRN and authenticate the file against the central registry of GST for any duplication. The IRN will be the unique identity of the e-invoice for the entire financial year.

• The invoice will be updated, after verification with IRP’s digital signature on invoice data and QR code will be added to the JSON file.

• Uploaded data will be shared with the e-way bill and GST system, which will be used for auto-population of GST returns.

• The portal will send the digitally signed JSON along with IRN and QR code back to the seller along with e-waybill number if part A and information is also sent along with e-invoice information.

• Using the digitally signed JSON along with QR code, the supplier would need to print the tax invoice along with e-invoice information like QR code, acknowledgement number, and date as well as IRN number.

Modes of generating e-invoices

As per the guidelines from the Government of India, the taxpayer can generate e-invoice in multiple ways through easy methods.

They can directly enter the invoice information on IRP portal for registration and validation. The taxpayer can also use API to access IRP via their own software. Further, the IRN can be generated/validated for invoices either one at a time or in bulk, like the e-way bill system.

The other methods include SMS-based service, mobile application, and even offline tools like MS Excel etc by entering invoice details as per the specific formats. 

Benefits of e-invoicing for the taxpayer

E-invoicing will enable to standardise reporting system on a real-time basis and reduce duplication of work, by eliminating the need to report in multiple formats. This will help in reducing the errors and efforts of data reconciliation and make compliance easier for businesses. It will further help in automatically generating GST returns by maintaining proper record of overall sales and purchase under the GST system.

It will facilitate the easy generation of e-way bill as now only vehicle details need to be included and rest will get auto-populated from e-invoice authenticated from the GST portal. Additionally, real-time invoice entry from the supplier’s side will lead to faster processing of input tax credit on the recipient’s side, resulting in faster and accurate credit availability to the recipient.

Implementation of e-invoice under GST will be a game-changer for the businesses across all sectors in India, which can help in driving positive results for our economy. It will gradually help realise the original design and concept of GST. This reformation will encourage more businesses to digitise and formalise business transactions.