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E-invoicing in India

Last updated on 10 October, 2020

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Latest Update from CBIC as on 30 July, 2020
  • E-invoicing system will now be applicable for businesses with annual turnover of 500 crore and above. Starting 1 October, 2020, these businesses have to create invoices on central government portal. The turnover threshold was earlier set at 100 crore.
  • The Central Board of Indirect Taxes and Customs (CBIC) has modified the e-invoice format by adding in 20 new fields and removing 13 pre-existing ones. Also, few alterations have been made to the character length in certain fields.
  • Special Economic Zones (SEZ) units have been exempted from issuing e-invoices.
 

E-invoicing

Under the new e-invoicing system, taxpayers will have to generate invoices following the guidelines set by the GST Council. This guide is your key to understanding the process of creating a compliant invoice. Here’s what you need to know.


What is e-invoicing?

An e-invoice, or electronic invoice, is a digital document that is exchanged between a supplier and buyer and validated by the government tax portal. E-invoicing is the proposed system where business-to-business (B2B) invoices are digitally prepared in an e-invoicing format and authenticated by the Goods and Services Tax Network (GSTN). This system ensures that a common format is followed by all businesses before reporting invoices to the GST portal.

In August 2019, the government shared a draft of an e-invoice for public view, which was later modified by the GST Council to be compliant according to their regulations. Not only does the standard format make compliance easier, but because it’s followed across industries, interoperability between GST ecosystems is ensured.

The current system

Today, an invoice generated by the seller needs to be prepared and reported to two different systems: GST Portal and e-Way Bill.  

Businesses generate invoices using different software and the invoice details are entered using a suitable API by the taxpayer in a GSTR-1 return. The same information is reflected in a GSTR-2A and made available to recipients with ‘view only’ permission. Simultaneously, transporters are required to generate the e-Way Bill, either directly or by importing the invoices into an excel sheet or JSON manually. 

To put an end to this endless trail of paperwork, the GST council introduced the new return system.

The need for a standard e-invoicing system

Tax departments internationally are eager to make the e-invoicing system a success for two reasons: 

With e-invoicing, fields will be pre-populated while filing returns, thus avoiding discrepancies during data entry and reconciliation. 

How to generate e-invoice under GST

The flow of a GST e-invoice system has two parts:

Generating an e-invoice

Taxpayers will generate invoices like they normally do, except reporting will now be done electronically. Taxpayers will have to follow the e-invoice schema and submit mandatory details accordingly. Here is a list of mandatory and optional parameters:

Besides the mandatory parameters, the Council also listed optional parameters, which are subject to change based on the needs of the business. Once the invoice fields have been finalised, a taxpayer has to decide if the accounting or billing software is capable of creating a JSON file, which can then be upload to the IRP.

Creating a unique IRN

The IRP will generate a hash parameter based on the details submitted by the seller, like GSTIN, document type, document number, and fiscal year. The IRP will then check if the same invoice exists in the Central Registry, and after confirming there are no duplicates, the IRP will add its signature and a QR code in the invoice’s JSON data. The hash generated by the IRP will be the Invoice Reference Number (IRN) for the e-invoice. 

Updating the invoice to the GST and e-way bill systems:

The digitally signed JSON with the IRN is sent to the seller. The uploaded invoice data is then shared with the GST and e-Way Bill system. The GST system will update the GSTR-1 for the seller and the GSTR-2A for the buyer, which will help in determining the liability and ITC. The GST e-invoice schema will contain details like ‘Transporter ID’ or ‘Vehicle number,’ which will be used to generate an e-Way Bill.

The government’s tax portal is not responsible for generating the e-invoice. In fact, it will be created with the aid of the seller’s accounting/billing software and their respective ERP systems. The IRP will just receive, validate, and digitally sign the invoices uploaded by the seller. 

How will it curb tax fraud

With the introduction of e-invoicing, tax authorities will now have access to a complete trail of B2B invoices from taxpayers since they will be uploaded in the GST portal. Because invoices are created before any actual transaction takes place, opportunities to manipulate the invoices decrease. The system can identify fake invoices by matching the input tax credit to output tax on the GSTN portal, preventing tax crimes.

Benefits of having an e-invoicing system

Generating a GST e-invoice is usually the responsibility of a taxpayer who reports to the IRP in GST. Next, the IRP will generate a unique IRN and a QR code. The taxpayer will be able to scan this QR code, extract the IRN, and fetch invoice details.  

Here are some benefits of e-invoicing for businesses: 

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