Everything You Need to Know About India's e-Invoicing

E-Invoicing is a system where taxpayers generate B2B invoices on their own accounting system according to the prescribed standard format

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The Central Board of Indirect Taxes and Customs (CBIC) announced the fourth phase of e-invoicing in February 2022 that will include businesses with a turnover exceeding INR 20 crore. Several lakh small and medium businesses will now come under the purview of this digital reform and will need to generate e-invoices from 1 April 2022.

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In this article, we decode the e-invoicing reform and explain how small businesses can prepare in order to meet the deadline that is less than a month away.

What is e-invoicing? How does the e-invoicing system work?

E-Invoicing is a system where taxpayers generate B2B invoices on their own accounting system according to the prescribed standard format that has been laid down by the government. The next step involves authenticating the invoice on a common portal, known as the Invoice Registration Portal or IRP.

Once authenticated or validated, the IRP generates an invoice reference number (IRN) and QR code and digitally signs the invoice. This invoice, now known as an e-invoice, is then returned to the original taxpayer, and the data from the e-invoice is sent to the e-way bill and GST portals for generating e-way bills and for populating the GST returns.

It is important to note here that so far, only B2B and export invoices come under e-invoicing. Further, the government has exempted sectors such as insurance, banking, NBFC, financial institutions, Goods Transport Agencies (GTA), passenger transport services, cinema, and SEZ units.

A walkthrough of the e-invoicing journey in India

E-Invoicing was first introduced in October 2020 to enterprises with a turnover exceeding INR 500 crore. After a successful run, the government decided to bring more businesses under the ambit of e-invoicing and extended the same to businesses with a turnover exceeding INR 100 crore and INR 50 from 1 January 2021 and 1 April 2021, respectively. Now, with this new announcement in February, businesses with a turnover of INR 20 crore-plus will need to start generating e-invoices from 1 April 2022.

The idea is to eventually bring all businesses and all transactions under the e-invoicing regime to promote interoperability between business and tax ecosystems as well as keep a check on tax evasion.

How does e-invoicing benefit both the government and taxpayers?

The objective of e-invoicing was the standardisation of the invoice format and interoperability amongst both business and tax ecosystems. However, the benefits of e-invoicing extend far beyond this. E-Invoicing helps the government track every B2B transaction being carried out by businesses in real-time, which helps eliminate fake invoices and input tax credit (ITC) fraud. Every e-invoice has a QR code printed on it, which helps tax officers in establishing their authenticity, especially in the case of goods in transit.

For businesses, the benefits are plenty as well. The data from e-invoices get auto-populated in the GST returns and e-way bills. This reduces the whole data duplication exercise. It also speeds up the ITC claims process and assures taxpayers that only genuine ITC is being reported.

What are the consequences of non-generation of e-invoices?

Eligible businesses who fail to comply with e-invoicing norms could be met with huge penalties of up to INR 10,000 per invoice for non-generation and up to INR 25,000 for incorrect e-Invoicing.

It could also create an unfavourable impact on their business. For instance, if an e-invoice does not get generated, then the B2B invoices do not get populated in the GST returns. This affects seller-buyer relationships as the buyers' GSTR-2A/2B also do not get auto-populated, and they cannot claim input tax credit. Non-generation of e-invoices means that the e-way bills for B2B supplies cannot be generated either, as an IRN is now mandatory for e-way bill generation. This could lead to the detention of goods and penalties.

How do small enterprises with a turnover of INR 20 crore-plus prepare for e-invoicing?

Small and medium businesses with a turnover of INR 20 crore-plus need to quickly find a solution that will help them be e-invoicing ready before the 1st April deadline. Generating e-invoices is not a complex affair with the right tools in place. However, the process of setting up, learning the system, and adapting could take a few weeks. With less than a month to go, these newly eligible enterprises need to gear up quickly in order to tackle this digital reform.

Firstly, eligible companies will need to register on the government's e-invoice portal. Taxpayers who have already registered on the e-way bill portal may use the same login credentials for the e-invoice portal. Next, the enterprise will need to select the best-suited option for generating e-invoices. There is an Excel-based e-invoice generation tool provided by the government. However, the use of this tool is time-consuming, as there is no bulk IRN generation option available. It could also be prone to errors as the entire process is manual.

What are the other e-invoicing options available to small businesses?

There are several leading, trusted e-invoicing solutions in the market that offer a more advanced web-based tool for generating e-invoices. These UI tools are user-friendly and can be set up in as less as 10-15 minutes. Here, businesses get an Excel template to ingest and upload the data to generate e-invoices in bulk with a single click.

Besides the bulk generation of e-invoices, it is important to select an e-invoicing solution that offers advanced features like 200-plus data validations, MIS reports, smart dashboards, 7-8 years of data archival, a quick response time, and SmartScreen corrections to correct errors on screen and reduce errors. It would also help an enterprise immensely if their e-invoicing solution offers a unified tool for e-way bill generation as well so that businesses can fulfil all compliances in one place.

What about the ERP integration options for the automated generation of e-invoices?

ERP integration for e-invoicing is one of the popular modes for e-invoice generation by large enterprises. However, smaller businesses sometimes don't prefer it due to the cost factor, though you cannot put a price on accuracy, as invoices generated under this mode are virtually error-free. Here, the ERP or accounting system of the taxpayer is integrated with the IRP for the automated generation and cancellation of e-invoices, all of which takes place in real-time.

If an enterprise is considering the ERP integration mode for e-invoice generation, it is better to go with a reputed and trusted e-invoicing solution. They will lay down the various options and help your company in making the right choice within your budget. They will also complete the setup and training process and resolve all queries in real-time.

Newly eligible enterprises hardly have three weeks left to implement invoicing and train their staff to adopt this digital reform. It's best to get started now rather than wait until the last moment as any glitches detected can be fixed well in time, and the system will be up and ready by 1 April.