On October 1, 2020, a new electronic system for invoice generation called e-invoicing was launched in India. E-invoicing was launched to enhance ease of doing business in India. It entails the creation of invoices on the taxpayer’s ERP or billing system, and thereafter uploading these invoices onto a common portal called the Invoice Registration Portal (IRP).
These invoices are allocated a unique Invoice Reference Number (IRN), affixed with a QR code, and digitally signed by the IRP. These e-invoices are then returned back to the taxpayer for further use in his business.
The electronic processing does not end here. The generation of these e-invoices is the first step of the new multi-dimensional reform known as e-invoicing. From the e-invoice portal or IRP, the data gets sent to both the Goods and Services Tax Network (GSTN), which enables the auto-population of the GST returns and also to the e-way bill portal, for the generation of e-way bills. The entire process is dynamic, seamless and quick, thereby reducing taxpayers’ time-consuming efforts on manual data entry between these three portals.
Standardisation of formats
But that’s not all. While e-invoicing definitely quickens the invoice data and tax reporting processes, its ultimate advantages are the standardisation of reporting formats, universal machine readability of invoices and the inevitable accountability that comes with an automated and auto-populated system of reporting. Besides, with GST returns getting auto-filled in, the whole data reconciliation exercise gets significantly automated from the taxpayer’s perspective, and for the government, it’s one step forward in reducing tax evasion.
In the first month since its launch, India saw nearly five crore e-invoices generated by 27,400 taxpayers, with as many as 35 lakh e-invoices generated in a single day. This is huge, considering the first phase encompassed only businesses exceeding a ₹500 crore turnover. By the time e-invoicing gets extended to all businesses and all taxpayers in India, we could be looking at one crore businesses preparing e-invoices.
For a country that has struggled with unscrupulous business practices that included erroneous credit claims and non-disclosure of revenue, this would be a monumental step in getting all businesses and transactions under the tax authorities’ radar.
It is notable that only B2B and export invoices are covered under the purview of e-invoicing for now. Considering the fact that most businesses in India have huge volumes of B2C transactions, it still leaves some gap open to tax evasion, something that will hopefully be plugged in the near future.
E-invoicing is cited to be the ultimate game changer in India’s business world. It enables electronic collaboration between suppliers and clients, thus facilitating effective supply-chain management. The introduction of QR codes on invoices, soon to be extended to even B2C invoices, will facilitate a convenience for customers like never before in terms of easy online purchases and mobile payments. QR codes will also help tax officers in verifying the authenticity of an invoice on the move, especially in cases of goods transported interstate.
From a business standpoint, e-invoicing will smoothen key business functions like inventory management, supplier management, receivable and payables, and after-sales service. The real-time availability of data is a boon to stakeholders, where they can validate facts and figures at their fingertips. The government can now link direct and indirect tax data more easily and this would leave no room for unethical reporting practices.
E-invoicing is all about ease and transparency. It increases the efficiency in internal and external processes, and decreases the chances of data misrepresentation every step of the way. Also, by taking the entire process online, costs are immensely reduced on paper invoices, documentation and audit.
In fact, e-invoicing can soon be a catalyst for change in terms of electronic auditing and other compliance requirements getting fulfilled. It is definitely the best thing that has happened to businesses in India under the GST regime.
The writer is Founder and CEO, ClearTax