The GST Council, on September 29, 2019, has approved the introduction
of ‘E-invoicing’ or ‘electronic invoicing’ for business to business
(B2B) transactions from January 1, 2020. Once implemented, it can help
arrest tax evasion as it enables pre-populating of GST returns with the
e-invoice details. Return filing will also become simpler with reconciliation becoming easier.
Recently, a concept note explaining what e-invoice is and how it operates was released and made available on the GSTN website.
The document allayed the concerns of the tax payers and reiterated that there is no requirement to generate the e-invoice on a government’s tax portal. The taxpayer can continue to use his accounting system such as ERP, Tally and excel based tools for creating the invoice. The only requirement is that the supplier’s software should be able to generate the invoice in a specified template in JSON format.
E-invoicing, which is touted as more of a business reform than a tax reform will initially be made applicable for certain taxpayers having turnover or invoice value above the specified limits or on voluntary basis. This will subsequently be enabled for all tax payers in a phased manner.
The e-invoice schema and template, as approved by the GST Council, are available in the GSTN website at https://www.gstn.org/e-invoice/
In addition, it standardises the invoice format ensuring interoperability of the data, eliminates fake invoices, provides complete trail of B2B transactions and enables system level matching of ITC and output tax.
As the system evolves, intercommunication of the transactions between the buyers’ and sellers’ software, e-way bill system and the banking systems is also mooted. This captures the complete transaction trail and can arrest tax evasion significantly.
But the tax experts are cautious about its implementation as it require updating the businesses’ existing accounting software.
PwC believes that e-invoice system will be a major development and would trigger changes in IT systems as well as the various processes involved in the business.
Archit Gupta, Founder and CEO – ClearTax, says that e-invoicing will add another layer to compliance.
The IRP accepts the e-invoice only as a JSON file. So all the suppliers should have an accounting software that can generate the invoice in such format. The small and medium size tax payers (having annual turnover below Rs 1.5 Crores) not using any online tool to generate an invoice can make use of the accounting and billing software (online/offline) available on the GSTN website free of cost.
Step 2: The IRP will in turn generate a unique Invoice Reference Number (IRN) and digitally sign the e-invoice and also generate a QR code.
Once the invoice is uploaded, the IRP computes hash (an alpha numeric number) based on the supplier’s GST number, invoice number and financial year. The hash becomes the IRN (Invoice Reference Number). Hash is unique to each invoice for the entire financial year. Each hash will be saved in a central registry of GST system ensuring same invoice from the same supplier pertaining to same financial year is not being uploaded again.
The supplier can also generate the hash themselves for which a required feature should be incorporated into their accounting software. In this case, once the JSON invoice with hash is uploaded to the IRP, the hash uploaded by the tax payer will be validated by the hash that IRP generates.
Subsequently, the IRP authenticates the e-invoice by adding digital signature to the JSON. Only the e-invoice signed by the IRP is considered a valid invoice for GST purposes.The signing of e-invoice by seller is not mandatory.
IRP also creates a QR code that contains vital details such as GSTIN of seller and buyer, invoice number, invoice date, number of line items, HSN of major items contained in the invoice as per value and hash.
Step 3: IRP sends the e-invoice data with digital signature and QR code to the seller and buyer on the mail Ids provided in the invoice. IRP also shares the uploaded invoice data with GST and e-way bill system.
The GST System, after validation, makes the e-invoice data available in ANX-1 (annexure of outward supplies) for the seller, and in ANX-2 (annexure of inward supplies) for the buyer. Buyer has an option to accept or reject the transaction. GST system, further, will determine tax liability and input tax credit (ITC).
Meanwhile, e-way bill system creates Part-A of e-way bill using the received data. Only vehicle number have to be added in Part-B of the e-way bill.
On the point that only one invoice can be uploaded at a time into the IRP, Gupta says- “success of e-invoicing will be hugely dependant on the stability of the portal to handle multiple requests at one go on a real-time basis.” However, the concept note assures that based on data reported in GSTR1 for last two years, capacity of the IRP system will be built so as to handle the envisaged loads of simultaneous upload.
e-invoice details. Return filing will also become simpler with reconciliation becoming easier.
Recently, a concept note explaining what e-invoice is and how it operates was released and made available on the GSTN website.
The document allayed the concerns of the tax payers and reiterated that there is no requirement to generate the e-invoice on a government’s tax portal. The taxpayer can continue to use his accounting system such as ERP, Tally and excel based tools for creating the invoice. The only requirement is that the supplier’s software should be able to generate the invoice in a specified template in JSON format.
E-invoicing, which is touted as more of a business reform than a tax reform will initially be made applicable for certain taxpayers having turnover or invoice value above the specified limits or on voluntary basis. This will subsequently be enabled for all tax payers in a phased manner.
The e-invoice schema and template, as approved by the GST Council, are available in the GSTN website at https://www.gstn.org/e-invoice/
Check on tax evasion
E-invoicing, if well implemented, reduces the compliance requirements to a great extent for it propels pre-populating of various returns such as GSTR 1 and e-way bills.In addition, it standardises the invoice format ensuring interoperability of the data, eliminates fake invoices, provides complete trail of B2B transactions and enables system level matching of ITC and output tax.
As the system evolves, intercommunication of the transactions between the buyers’ and sellers’ software, e-way bill system and the banking systems is also mooted. This captures the complete transaction trail and can arrest tax evasion significantly.
But the tax experts are cautious about its implementation as it require updating the businesses’ existing accounting software.
PwC believes that e-invoice system will be a major development and would trigger changes in IT systems as well as the various processes involved in the business.
Archit Gupta, Founder and CEO – ClearTax, says that e-invoicing will add another layer to compliance.
How does it work?
Step 1: The supplier or tax payer should report the JSON format of the invoice to the Invoice Registration Portal (IRP).The IRP accepts the e-invoice only as a JSON file. So all the suppliers should have an accounting software that can generate the invoice in such format. The small and medium size tax payers (having annual turnover below Rs 1.5 Crores) not using any online tool to generate an invoice can make use of the accounting and billing software (online/offline) available on the GSTN website free of cost.
Step 2: The IRP will in turn generate a unique Invoice Reference Number (IRN) and digitally sign the e-invoice and also generate a QR code.
Once the invoice is uploaded, the IRP computes hash (an alpha numeric number) based on the supplier’s GST number, invoice number and financial year. The hash becomes the IRN (Invoice Reference Number). Hash is unique to each invoice for the entire financial year. Each hash will be saved in a central registry of GST system ensuring same invoice from the same supplier pertaining to same financial year is not being uploaded again.
The supplier can also generate the hash themselves for which a required feature should be incorporated into their accounting software. In this case, once the JSON invoice with hash is uploaded to the IRP, the hash uploaded by the tax payer will be validated by the hash that IRP generates.
Subsequently, the IRP authenticates the e-invoice by adding digital signature to the JSON. Only the e-invoice signed by the IRP is considered a valid invoice for GST purposes.The signing of e-invoice by seller is not mandatory.
IRP also creates a QR code that contains vital details such as GSTIN of seller and buyer, invoice number, invoice date, number of line items, HSN of major items contained in the invoice as per value and hash.
Step 3: IRP sends the e-invoice data with digital signature and QR code to the seller and buyer on the mail Ids provided in the invoice. IRP also shares the uploaded invoice data with GST and e-way bill system.
The GST System, after validation, makes the e-invoice data available in ANX-1 (annexure of outward supplies) for the seller, and in ANX-2 (annexure of inward supplies) for the buyer. Buyer has an option to accept or reject the transaction. GST system, further, will determine tax liability and input tax credit (ITC).
Meanwhile, e-way bill system creates Part-A of e-way bill using the received data. Only vehicle number have to be added in Part-B of the e-way bill.
On the point that only one invoice can be uploaded at a time into the IRP, Gupta says- “success of e-invoicing will be hugely dependant on the stability of the portal to handle multiple requests at one go on a real-time basis.” However, the concept note assures that based on data reported in GSTR1 for last two years, capacity of the IRP system will be built so as to handle the envisaged loads of simultaneous upload.
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