GST E-Invoicing Phase 2: The Challenges, Dos and Don’ts For MSME

India is gearing up to roll out the second phase of mandatory electronic invoicing under the goods and services tax regime from the start of next year. Registered businesses having turnover above Rs 100 crore will have to issue electronic invoices for notified business-to-business transactions. To recall, this system was first implemented in October for entities having a turnover above Rs 500 crores

The transportation of goods from one place to another is facilitated by the filing of ‘E-Way Bills’ on the common GST portal. Similarly, the GST Council, in its 35th meeting, has decided to implement a system of e-Invoicing, which will be applicable to specified categories of persons. The CBIC formally notified the system of e-Invoicing under GST vide Notification No. 68/2019 – Central Tax, which inserted sub-rules (4), (5) and (6) under rule 48 of the CGST Rules, 2017 for the implementation of e-Invoicing.

e-Invoicing does not imply the generation of invoice on GST portal. That would be a myth. Instead, e-Invoicing involves the submission of an already generated standard invoice on a common e-invoice portal. Thus it automates multi-purpose reporting with a one-time input of invoice details. The CBIC notified a set of common portals for the preparation of e-invoices via Notification No.69/2019 – Central Tax.

ClearTax provides the best-in-class e-Invoicing software solution for enterprises. It offers variety of modes through which e-invoice can be generated by the companies such as the seamless API integrations or Excel mode or the FTP/SFTP. The user can enjoy numerous value additions such as reconciliation vis-a-vis e-way bill and GSTR-1 data, insightful reports, customised print template for e-invoice, data archiving, etc.

1. What is e-Invoicing under GST?

‘e-Invoicing’ or ‘electronic invoicing’ is a system in which B2B invoices are authenticated electronically by GSTN for further use on the common GST portal. Under the electronic invoicing system, an identification number will be issued against every invoice by the Invoice Registration Portal (IRP) to be managed by the GST Network(GSTN). The first IRP was launched by the National Informatics Centre at einvoice1.gst.gov.in. All invoice information will be transferred from this portal to both the GST portal and e-way bill portal in real-time. Therefore, it will eliminate the need for manual data entry while filing GSTR-1 return as well as generation of part-A of the e-way bills, as the information is passed directly by the IRP to GST portal.

2. To whom is e-Invoicing applicable?

e-Invoicing has been made applicable from 1st October 2020 to all businesses whose aggregate turnover has exceeded Rs.500 crore limit in any of the preceding financial years from 2017-18 to 2019-20. Notification No.61/2020 – Central Tax prescribed the turnover limit for the implementation of e-Invoicing from 1st October 2020. Notification No.71/2020 – Central Tax prescribes the time period considered for determining eligibility under e-Invoicing.

Further, from 1st January 2021, e-Invoicing will be applicable to businesses exceeding the Rs.100 crore turnover limit in any of the financial years between 2017-18 to 2019-20, as intimated in Notification No.88/2020 – Central Tax.

However, irrespective of the turnover, e-Invoicing shall not be applicable to the following categories of registered persons for now, as notified in CBIC Notification No.13/2020 – Central Tax:

• An insurer or a banking company or a financial institution, including an NBFC
• A Goods Transport Agency (GTA)
• A registered person supplying passenger transportation services
• A registered person supplying services by way of admission to the exhibition of cinematographic films in multiplex services
• An SEZ unit (excluded via CBIC Notification No. 61/2020 – Central Tax)

3. What is the current system in place for issuing invoices?

Currently, businesses generate invoices through various softwares, and the details of these invoices are manually uploaded in the GSTR-1 return. Once the GSTR-1 is filed by the respective suppliers, the invoice information is reflected in form GSTR-2A for the recipients for viewing only. On the other hand, the consignor or transporters must generate e-way bill by again importing the invoices in excel or JSON manually. Under the e-Invoicing system to be implemented from 1st October 2020, the process of generating and uploading invoice details will remain the same. It will be done by importing using the excel tool/JSON or via API integration, either directly or through a GST Suvidha Provider (GSP). The data will seamlessly flow to GSTR-1 preparation and for the e-way bill generation too. The e-Invoicing system will be the key tool to enable this.

4. How will Electronic invoicing benefit businesses?

Businesses will have the following benefits by using e-invoice initiated by GSTN:

1. E-invoice resolves and plugs a major gap in data reconciliation under GST to reduce mismatch errors.
2. E-invoices created on one software can be read by another, allowing interoperability and help reduce data entry errors.
3. Real-time tracking of invoices prepared by the supplier is enabled by e-invoice.
4. Backward integration and automation of the tax return filing process – the relevant details of the invoices would be auto-populated in the various returns, especially for generating the part-A of e-way bills.
5. Faster availability of genuine input tax credit.
6. Lesser possibility of audits/surveys by the tax authorities since the information they require is available at a transaction level.

5. What is GSTN’s e-Invoicing initiative?

GSTN had released the draft version of e-invoice format in an excel template and made it available for public feedback around 20 August 2019. The same was approved by the GST Council with some alterations at the 37th GST Council meeting held on 20 September 2019. GSTN associated with ICAI drafted the format to be compliant with the GST and other Indian tax laws. Apart from these, the format adheres to international and various industry standards. The e-invoice format looks exhaustive and a single format caters to different industries and businesses. Any existing accounting or invoicing software/ application provider (SAP/Tally/Busy) must follow the PEPPOL standard for invoice generation. Taxpayers will, therefore, be able to generate a compliant invoice at the source. GSTN referred the PEPPOL (Pan European Public Procurement Online) standard, which works on Univeral Business Language (UBL) version of electronic XML. Currently, PEPPOL is the most used standard across the globe. The system advocates diversified business applications and trading communities to exchange information along their supply chains using a common or a standard format. It enables a single point of data entry into electronic commerce for businesses. Thereafter, the data flows across different portals with the help of an IRP. The GSTN’s e-invoice contains the following parts: (1) E-invoice schema: It consists of the technical field name, description of each field, whether it is mandatory or not, and has a few sample values along with explanatory notes. (2) Masters: Masters will specify the set of inputs for certain fields, that are pre-defined by GSTN itself. It includes fields like UQC, State Code, invoice type, supply type, etc. (3) E-invoice template: The template is as per the GST rules and enables the reader to correlate the terms used in other sheets. The mandatory fields are marked in green and optional fields are marked in yellow.

6. When will e-Invoicing get implemented?

The first phase of e-Invoicing was implemented from 1st October 2020 for taxpayers with an aggregate turnover exceeding Rs.500 crore. From 1st January 2021, e-Invoicing will be extended to businesses with an aggregate turnover exceeding Rs.100 crore. The government plans to bring all businesses under the scope of e-Invoicing from 1st April 2021. The aggregate turnover will include the turnover of all GSTINs under a single PAN, across India.

7. What is the process of getting an e-invoice?

The following are the stages involved in generating or raising an e-invoice. 1: The taxpayer has to ensure to use the reconfigured ERP system as per PEPPOL standard. He could coordinate with the software service provider to incorporate the standard set for e-Invoicing, i.e. e-invoice schema (standards) and must have the mandatory parameters notified by the CBIC, at least. 2: Any taxpayer has got primarily two options for IRN generation.
(1) The IP address of the computer system can be whitelisted on the e-invoice portal for a direct API integration or integration via GST Suvidha Provider (GSP).
(2) Download the Bulk generation tool to bulk upload the invoices. It will generate a JSON file which can be uploaded on the e-invoice portal to generate IRNs in bulk. 3: The taxpayer must thereafter raise a normal invoice on that software. He must give all the necessary details like, billing name and address, GSTN of the supplier, transaction value, Item rate, GST rate applicable, tax amount, etc. 4: Once either of the above options is chosen, raise the invoice on the respective ERP softwares or billing softwares. Thereafter, upload the details of invoice especially mandatory fields onto the IRP using the JSON file or via application service provider (app or through GSP) or through direct API. The IRP will act as the central registrar for e-Invoicing and its authentication. There are several other modes of interacting with IRP such as SMS-based and mobile app-based. 5: IRP will validate the key details of the B2B invoice, checks for any duplications and generates an invoice reference number (hash) for reference. There are four parameters based on which IRN is generated: Seller GSTIN, Invoice number, and FY in YYYY-YY) and document type (INV/DN/CN). 6: IRP generates the invoice reference number (IRN), digitally signs the invoice and creates a QR code in Output JSON for the supplier. On the other hand, the seller of the supply will get intimated of the e-invoice generation through email (if provided in the invoice). 7: IRP will send the authenticated payload to GST portal for GST returns. Additionally, details will be forwarded to the e-way bill portal, if applicable. The GSTR-1 of the seller gets auto-filled for the relevant tax period. In turn, it determines the tax liability. A taxpayer can continue to print his invoice as being done presently with logo. e-Invoicing system only mandates all taxpayers to report invoices on IRP in electronic format.

8. How will e-Invoicing curb tax evasion?

It will help in curbing tax evasion in the following ways:

• Tax authorities will have access to transactions as they take place in real-time since the e-invoice will have to be compulsorily generated through the GST portal.
• There will be less scope for the manipulation of invoices since the invoice gets generated prior to carrying out a transaction.
• It will reduce the chances of fake GST invoices and the only genuine input tax credit can be claimed as all invoices need to be generated through the GST portal. Since the input credit can be matched with output tax details, it becomes easier for GSTN to track fake tax credit claims.

9. What are the mandatory fields of an e-invoice?

E-invoice must primarily adhere to the GST invoicing rules. Apart from this, it should also accommodate the invoicing system or policies followed by each industry or sector in India. Certain information is made mandatory whereas the rest of them is optional for businesses. Many fields are also made optional and users can choose to fill up relevant fields only. It has also provided a description for every field along with the sample inputs for the interested users. One can see that certain required fields from the e-way bill format are included now in e-invoice such as the sub supply type.
Below is the gist of the contents of the latest e-invoice format as notified on 30th July 2020 via Notification No.60/2020 – Central Tax:

1. 12 Sections (mandatory + optional) and 6 annexures consisting of total 138 fields
2. Out of the 12 Sections – 5 are Mandatory and 7 are Optional. Two annexures are mandatory.
3. The 5 Mandatory sections are Basic Details, Supplier Information, Recipient Information, Invoice Item Details, Document Total. The two mandatory annexures are details of the items and document total.

The following fields must be compulsorily be declared in an e-invoice:

10. How does the e-invoice look like?

The e-invoice format notified is as follows:

11. Frequently Asked Questions on e-Invoice

1. To whom will e-Invoicing apply?

A: The e-Invoicing system shall apply to the GST registered persons whose aggregate turnover in the financial year exceeds Rs.100 crore. However, exceptions include Special Economic Zones (SEZ) units, insurance, banking, financial institutions, NBFCs, GTA, passenger transportation service and sale of movie tickets.

2. Can an e-Invoice be cancelled partially/fully?

A: An e-Invoice cannot be cancelled partially but can be cancelled wholly. On cancellation, it must be reported into the IRN within 24 hours. Any attempt to cancel thereafter, cannot be done on the IRN and needs to be manually cancelled on the GST portal before the returns are filed.

3. Will the bulk-uploading of invoices for generation of IRN be possible?

A: No, invoices must be uploaded one at a time into the IRP. The ERP of a company will need to be designed so that it can place the request for the upload of individual invoices.

4. Will there be a facility for e-invoice generation on the common GST portal?

A: No, invoices will continue to be generated on the individual ERP softwares that are currently in use by businesses.

The invoice must adhere to the e-Invoicing standard format and include the mandatory parameters. The direct generation of invoices on a common portal is not being planned at the moment.

5. What are the types of documents that are to be reported into the IRP?

A: The documents that will be covered under e-Invoicing system are as follows-

1. Invoices by the Supplier
2. Credit Notes by the Supplier
3. Debit Notes by the Recipient
4. Any other document as notified under GST law to be reported as e-invoice by the creator of the document

For more FAQs on e-Invoicing, read our article on e-Invoicing FAQs.