E-invoicing and the future of GST compliance in India

After being deferred twice in 2020, mandatory e-invoicing under the Goods and Services Tax was finally implemented on October 1, 2020. While this new invoice authentication system is only applicable on business to business (B2B) transactions by companies with an annual turnover exceeding ₹500 crores, for now, e-invoicing has received a positive initial response. In its first week of implementation, over 65 lakh invoice registration or invoice reference numbers were issued on the common portal. This new system is expected to iron out several issues while filing GST returns, decrease the turnaround time for verification of e-way bills and keep tax evasion in check. 

In a bid to allow the new system to breathe and work out any initial kinks, e-invoicing is only applicable to businesses falling under a specific turnover threshold. But gradually, as more and more businesses take up e-invoicing and familiarise themselves with the new system, the threshold will be brought down and more businesses will be brought under the radar of e-invoicing. 

As a part of its phased plan of implementing e-invoicing, the authorities will make e-invoicing applicable to businesses with an annual turnover exceeding ₹100 crores from January 1, 2021. Finally, all business to business (B2B) transactions, irrespective of turnover will be required to adopt e-invoicing starting April 1, 2020. Experts have also been recommending that all business to customer (B2C) transactions be brought under the purview of e-invoicing. So, how is e-invoicing going to change the future of GST compliance? Let’s find out. 

E-invoicing is likely to subsume the e-way bill system

Finance Secretary Ajay Bhushan Pandey in a statement to the media said that e-invoicing is likely to replace the current e-way bill system in future. Presently, the movement of goods is being authorised if a company has a valid GST invoice and an e-way bill for orders which meet the conditions. The CBIC has issued a notification that carrying physical copies of a tax invoice will no longer be mandatory for companies who have taken up e-invoicing. If the company has generated an invoice reference number (IRN) for the goods in question, and a QR code, both an IRN and a QR code are more than enough documentation for the verification of goods that are being moved. 

GST evasion to be kept in check 

Reports stated that India faced losses worth ₹48,000 crore due to tax evasion only between April and December 2018. Mandatory e-invoicing ensures that every single B2B GST invoice generated by a business, not only maintains a standardised schema so that it can be easily processed by supporting systems but also electronically authenticates the validity of the GST invoice by issuing an invoice reference number. This invoice reference number must be mentioned while filing GST returns, allowing a specific portion of details in the GST returns forms to be auto-populated, thereby eliminating the issue of fake invoicing. 

Paperless invoice regime is the future 

E-invoicing will significantly reduce manual paperwork in GST operations and allow faster authentication of invoices. Additionally, a digital QR code or Quick Response Code for B2C transactions will reduce the turnaround time for verification of goods at revenue checkpoints thereby reducing losses due to delayed deliveries. Since each GST invoice will be uploaded to the common portal for electronic authentication, details of the invoice will be auto-populated while filing GST returns. 

Big data to improve GST best practices 

With a good chunk of tax operations being digitised, tax authorities will have mountains of data at hand and this data can be used to analyse and improve GST practices. Since data will be structured because of the standardised schema, tax authorities will also be able to detect and weed out malpractices, encourage and advocate GST compliance. 

Failure to produce an e-invoice can attract penalty 

While the government is being lenient in the initial phase of e-invoicing and has issued an extension to adapt to e-invoicing, it is highly unlikely to be as considerate when e-invoicing rolls out for businesses under the lower threshold. This is mainly because more than enough time has been allotted for businesses to upgrade their systems, adopt suitable technology and get ready for e-invoicing under GST. Moving forward, companies who do not adhere to GST e-invoicing will not only have to face penalties per invoice, their GST invoice will be deemed invalid, meaning, any goods being moved by such a business is likely to be detained, they will have to face heavy losses because their supply chain system will be disrupted and payments from their customers will get stuck affecting their cash flow. 

Some of the most significant benefits of e-invoicing are error-free data, improved efficiency, reduced cases of data reconciliation, faster processing of input tax credit claims, increased transparency, reduced tax and compliance risk and finally, a significant reduction in a business’s carbon footprint. But to conclude, e-invoicing is here to stay and it is going to be mandatory for all businesses in future. So, the earlier you adopt an e-invoicing solution, the better, because preparing for e-invoicing, understanding the touchpoints in the business processes which will get affected, upgrading internal systems, evaluating different methods of generating e-invoices, choosing a comprehensive e-invoicing technology solution, integration with business systems, testing business scenarios and finally going live will also require effort and time. 

To learn more about how Avalara can help you with e-invoicing, GST returns, smart invoice reconciliation, e-way bills, GST calculations and GST registrations, you can schedule a meeting with our team of solution experts.