The impact points of e-invoicing under GST

After many debates, discussions and deferrals, the tax reform of e-invoicing under the Goods and Services Tax was implemented in India in October 2020. E-invoicing has had a successful run in many countries around the world including France, Italy, Chile, Singapore, Mexico. In India, after the introduction of the Goods and Services Tax in 2017, e-invoicing is said to be the next big thing under indirect tax administration and is expected to bring about a significant change in the way India manages invoices and administers indirect tax. This is because e-invoicing won’t just impact the tax invoice, it will have an impact on several other elements under the Goods and Services Tax including GST returns preparation and filing, e-way bills, reverse charge mechanism, input tax credit and other business operations including legal, information technology infrastructure, logistics, procurement, supply chain etc.

E-invoicing is expected to impact multiple aspects of GST and GST compliance. The e-invoicing mechanism is directly linked with two important mechanisms under the Goods and Services Tax, which are e-way billing generation and GST returns.

Let’s understand how these compliance processes will be impacted by e-invoicing.

A tax invoice is a crucial document for a business & the introduction of e-invoicing not only helps in digitizing the physical form of the invoice, but also entirely standardizes and revamps the current method of invoice communication between digital systems of enterprises. E-invoicing will lead India towards a more organized, standardized and paperless invoice regime.

Reconciliation under GST is a vital process conducted regularly. The process directly impacts the cash flow of a business since it dictates the final amount of tax to be paid to the GST authorities and also the amount of input tax credit that the taxpayer can claim. E-invoicing will impact the current reconciliation process of various documents under GST compliance since the e-invoice data will get auto-populated under several fields of GST returns and e-way bills, and in this process directly link compliance processes of both. This means e-invoicing will be a critical liaison between both processes.

When a taxpayer furnishes details to generate and validate an e-invoice on the invoice registration portal, the portal stores that data for 24 hours so that the taxpayer has buffer time in case they want to cancel the e-invoice before sharing it with the GST portal. This e-invoice data is then auto-populated in a supplier’s sales data on GSTR-1 and later, in GSTR-2A of the recipient of the goods and services so that the taxpayer does not have to painstakingly go through a manual data entry process while preparing and filing GST returns. However, 24 hours is a very short window for businesses to cancel an e-invoice, because if incorrect information gets furnished on the GST returns, the process to correct such situations would be quite cumbersome.

In a nutshell, the introduction of e-invoicing will directly affect ITC since the invoice data will be auto-populated on GSTR-1 of supplier and GSTR-2A of recipient. This auto-population of invoice data will reduce data reconciliation errors, leading to faster processing of ITC claims. Also, accurate sales & purchase invoice data will help in maximization of input tax credit amount. This impacts the bottomline of a business which is why they should proactively ensure that they have a single source of truth for all invoice data sources. Integration of all invoices data sources, including ERPs, e-commerce platforms, POS systems, with an automated e-invoicing solution is a good starting point.

E-invoicing is also expected to impact the reverse charge mechanism under GST since reverse charge mechanism invoices are applicable for generating e-invoices. The recipient of RCM invoices are liable to generate e-invoices for their inward supplies as they can be furnished while claiming ITC.

E-invoicing is applicable for export invoices as well, so businesses who want to claim any GST refunds involving ITC, exports, RCM, etc. will be impacted by e-invoicing due to auto- population of returns.

Just like the e-invoices details furnished are shared with the GST returns portal, in the same way, necessary e-invoice details will be shared with the e-way bill portal. This means certain aspects of the e-way bill form will be pre-populated while generating an e-way bill leading to linking of tax invoice details and the e-way bill making it easier for tax revenue authorities to refer to the unique IRN at transport check points. Taxpayers must be aware that generating an invoice reference number doesn’t automatically generate an e-way bill. The taxpayer will still be required to furnish other details while generating an e-way bill like route of transport, vehicle registration number, etc. If businesses want to avoid going to yet another portal and go through the manual process of e-way bill generation, opting for a comprehensive e-invoicing solution with e-way bill generation module will be a smart move.

The creation of an invoice is the inception point of any business transaction. Businesses need to keep accurate records of all transactions and furnish proper clarifications for any changes in their transactions from the initial level with GST authorities, so that there are significantly lower chances of penalties during GST audits.

With the introduction of e-invoicing, all invoice data as well as the tax liabilities will be available with the officials at any time. GST authorities will be able to access that data in real time, eventually leading to fewer GST Audits. Even in case of any surprise audits conducted by GST authorities, they are likely to be much more efficient and rapidly conducted mainly because auditors will have access to the unique invoice reference numbers to match and to ensure that all details are furnished, all subsequent ITC claims along with tax liabilities are accurate.

Overall, the system of e-invoicing is not only expected to streamline and speed up the time taken to generate e-way bills or file GST returns, they will also help nip tax evasion in the bud. In absence of a valid invoice reference number, taxpayers who intend on committing tax fraud will be unable to file GST returns or generate e-way bills. This will help the officials recover revenue lost due to tax evasion and also encourage honest tax operations as the processes will become much faster - all thanks to e-invoicing.

However, it is ideally recommended that businesses opt for a comprehensive, automated and integrated e-invoicing solution to ensure that the data is properly validated and sanitized before they reach their impact points under the GST system. Moreover, such e-invoicing solutions will not only help unburden a business’s finance team but also help them prep in case e-invoicing procedures change with time.