E-invoicing under GST and its impact on businesses

E-invoicing under GST and its impact on businesses

The GST Council, in its 37th meeting, has proposed the introduction of electronic invoicing. This proposition came after consultations with various trade and industry bodies, such as FICCI, ASSOCHAM, etc; as well as with the ICAI. Following these discussions, a standard for an e-invoice has been finalized. This will ensure that e-invoices across the entire GST ecosystem are interoperable. In other words, an e-invoice generated by one software can be ready by another software, without the need to manually enter data again. Not only will this bring efficiency into the system, but it would also reduce the compliance burden for all taxpayers. 

Currently, taxpayers have to separately report invoice data for their GST return and e-way bill, since both of them have different formats. This has a lot of issues, such as errors in manual processing, excess use of paper, generation of fake invoices, etc. An e-invoice standard is the need of the hour to counter these issues, and to bring about better efficiency in the system. 

What is an e-invoice under GST?

Most people believe that under the e-invoicing system, taxpayers would have to generate invoices from a central portal. This is far from the truth. E-invoicing refers to the system wherein all B2B invoices will be uploaded electronically, and then validated by the designated portal. The Invoice Registration Portal (IRP) will issue an identification number, which will be managed by the GST Network (GSTN) 

Benefits of e-invoicing system for the taxpayers

A major advantage of e-invoicing is that the data which that IRP generates can then be further used by the common portal as well as the e-way portal. This helps to ensure transparency as well as proof. From the accounting software, data is seamlessly transferred to the e-invoice system. This helps to prevent the duplicity of an invoice. This will also help in significantly reducing the input credit verification issues. This will then lead to faster and accurate credit availability to the recipient. 

Which businesses are required to generate an e-invoice?

The starting dates for the implementation of e-invoicing and QR code has been extended to 01.10.2020, following which the e-invoicing system will be made mandatory for all taxpayers. To facilitate businesses to easily adapt to this new system of electronic invoicing, the government has given a heads up to introducing it in a phased manner. Businessmen who have an annual aggregate turnover of over INR 500 crores can generate e-invoices voluntarily from 7th January 2020 onwards through APIs. On the other hand, those businesses that have a turnover of over INR 100 crores but less than INR 500 crores can start generating e-invoices from 1 February 2020. 

Note that certain registered persons, including insurance and baking company, financial institutions, non-banking financial institutions, and passenger transportation services have been exempted from issuing e-invoices. 

How to generate an e-invoice?

The generation of an e-invoice will soon become part of the business process for the taxpayers. They will have to report the e-invoice to the IRP, which will then generate a unique IRN. The e-invoice will be signed automatically, and a QR code will also be generated. The Quick Response code comprises of various vital parameters of the e-invoice, and it will return the same to the taxpayer who generated the document. 

  1. The supplier will first have to create an invoice in the prescribed format using suitable accounting software. Following this, the JSON file of the invoice will have to be uploaded to the IRP. 
  2. The IRP will generate a unique IRN, and also digitally sign the e-invoice to generate a QR code. Once the invoice has been uploaded to the IRP, it will compute a 'hash' based on the GSTIN of the supplier, the invoice number, and the financial year. This hash will then become the IRN which will be unique to every invoice for the entire year. Under the GST laws, only e-invoices that have been signed by the IRP will be considered valid. A QR code will also be generated by the IRP, and it will contain vital details such as GSTIN of supplier and buyer, the invoice number, invoice date, and the line number of items. 
  3. Finally, the IRP will send the data along with a digital sign and QR code to the buyer and supplier on their email address, if that has been provided. The IRP will also share the invoice data with the common GST portal and the e-way bill system. 

Once the e-invoice data has been received, the GST system will validate and make the data available in ANX-1 for the supplier, and ANX-2 for the buyer. It will also calculate tax liability and input tax credit. At the same time, the e-way bill system will use the received data to create Part A of the e-way bill. The vehicle number will be needed to be filled in Part B on the e-way bill. 

The introduction of e-invoicing will not change how a taxpayer interacts with his or her accounting software. Additionally, all changes will have to be made by the software provider in the software to facilitate the reporting at the Invoice Reporting Portal. At the same time, this will bring accuracy and automatization into the system, reduce the use of paper, and also improve supplier-buyer relations and capital management.