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/
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.