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E-invoicing in GST: A Comprehensive Guide

  • 16 August, 2024
  • 10 Mins

Highlights

  • E-Invoicing is now mandatory for all businesses with 5 cr+ turnover.
  • E-Invoicing applies to Business-to-Business (B2B) transactions, including exports.
  • Certain entities like SEZs, Insurance companies, and banks are exempt from E-Invoicing.

Buyers and sellers exchanged millions of invoices every day- and yet, the process remained extremely labor-intensive and prone to manual errors for a long time. It was in September 2019 that the concept of E-Invoicing in GST was introduced. It offered an alternative to organizations dealing with many invoices to use technology and eliminate manual intervention.

While initially, E-Invoicing was a choice, it is now mandatory up to a certain turnover limit. It first became mandatory on October 1, 2020, for businesses with an annual turnover of 500 crores or more. Ever since, it has gone through multiple phases with a reduced turnover threshold limit every time. At present, E-Invoicing is mandatory for businesses with 5 cr+ turnover as per the CBIC Notification No. 10/2023- Central Tax. Given that mandatory threshold limit can soon be reduced to 1cr+ turnover, it is important to have clarity about E-Invoicing. Businesses should especially understand how it is an imperative part of GST return filing now.

This blog post here will cover detailed information about E-Invoicing, its applicability in GST, how it works, and more.

What is E-Invoicing in GST?

E-Invoicing in GST in India implies generating invoices in a standardized electronic format regulated by the government. This aims to maintain consistency across varied GST platforms and streamline processes by making invoices verifiable and accessible.

However, this process does not involve generating invoices on a GST portal. Instead, it means uploading an already generated invoice to the Invoice Registration Portal (IRP). But, before that, you need to complete e-invoice registration Read our detailed guide on how to complete e-invoice registration on IRP portal. Once the IRP validates the invoice, it issues a unique Invoice Reference Number (IRN). Simultaneously, it generates an e-invoice QR code with key details of the invoice. This QR code is also significant for verification as it is shared with the GST portal and e-way bill system.

Therefore, E-Invoicing in GST conveniently eliminates the need for manual data entry during GST return filing or generating part A of the e-way bill as all the required information is directly passed to the GST portal. It also helps the government track tax liabilities more effectively by tackling the persistent issue of tax leakage.

How does E-invoicing in GST work?

The E-Invoicing in GST incorporates real-time verification and synchronization with the tax return options in the Indian GST structure. The steps below further elaborate on the process of e-invoicing from the generation to automated reporting in accordance with GST.

  1. E-Invoice Generation: It starts with the business creating a standard invoice from its current accounting software or Enterprise Resource Planning (ERP) system. However, for this invoice to be GST compliant, it should be in a format as defined by the GST Network. The information contained on the invoice must include suppliers and buyers’ information, invoice number, and the taxable value and amount.
  2. Uploading the Invoice to the IRP: Next, the data must be submitted to the Invoice Registration Portal (IRP) for e-invoice registration purposes. The system automatically transfers these details to the e-way bill system, which generates an e-way bill for transporting goods. Both the e-invoice and the e-way bill are required when goods are moved over a certain distance or exceed a specific threshold.
  3. Generating the Invoice Reference Number (IRN): When the invoice is uploaded to the IRP, the portal analyzes the data and generates an invoice reference number (IRN) for the invoice. In the context of e-Invoicing in GST, the IRN functions as a reference number, integrating the invoice into GST system.
  4. QR Code Generation: At the same time, the IRP creates an e-invoice QR code, which reveals invoice details, including the supplier and recipient GSTIN numbers, the invoice number, date, & IRN. This QR code is then incorporated into the invoice in such a manner that it would not be difficult for anyone to encode it again. The e-invoice QR code is more significant during transportation for authenticity variance.
  5. Validation by the IRP: The IRP also validates the e-invoice to ensure that the uploaded information does not contradict the GST provisions. It runs thorough checks for duplication and makes sure that the invoice is properly formatted. Once validated, the IRP uses a digital signature in GST and sends it back to the business along with the IRN and QR code.
  6. Automatic Transmission to GST and E-Way Bill Systems: Once the e-invoice has been validated, the IRP then sends the invoice data to the GST portal. This linking also facilitates the automatic mapping of invoice fields with the intended GST returns such as GSTR-1 and GSTR-2A. Furthermore, for the transportable goods, the same data is transmitted to the e-way bill system. This process supports the integration of e-invoice system with the e-way bill generation.
  7. Distribution to the Buyer: Once an e-invoice is validated and registered, the supplier can send an e-invoice to a buyer. Thus, the buyer can verify the invoice using the e-invoice QR code or IRN on the GST portal.

The concept of e-invoicing in GST aims to improve the safety and efficiency of the invoicing system. When the company registers for e-invoices, it becomes easier for it to meet tax requirements as it is done electronically. The e-invoice QR code and digital signature also confirms genuineness of the invoice as per the law.

E-Invoice Schema and Format

The e-invoice schema and format are essential components of e-invoicing for GST compliance and compatibility with the government framework. Although they serve different functions, they are equally useful in enhancing the easy and smooth creation and verifying of invoices.

E-Invoice Schema

The e-invoice schema is what explains how and what needs to be done throughout the creation of electronic invoices. The schema is written in a machine-readable format like JSON, enabling a business’s e-invoicing software to generate GST-compliant invoices. It also defines the fields that must be completed for an invoice to be valid. Here is a list of all such fields:

  • Basic Invoice Details: Data including the invoice number, date of the transaction, and type of transaction.
  • Supplier and Buyer Information: GSTIN of both the parties and their legal names and addresses.
  • Line-Item Details: Further, the division of goods and services that were given, with quantities, price per unit, and the overall price.
  • Tax Information: The GST rates that will apply to the products depending on whether they are CGST, SGST, or IGST, or both, and the total amount of tax charged.
  • Invoice Reference Number (IRN): An identification number given to the e-invoice by the Invoice Registration Portal (IRP), after approving the invoice.
  • Digital Signature in GST: Having been validated, they are electronically signed by the IRP as confirmation of their authenticity and security.

E-Invoice Format

The e-invoice format refers to how the invoice looks on the computer, regardless of the software used. While the schema dictates how the information is structured, the format determines how this information is delivered to the consumer, whether as a PDF, printed format, or on-screen.

You can also customize the format to match a business’s branding and preferences, but you must include all fields required by the e-invoice schema.. Some of the requirements include the invoice reference number (IRN) and the e-invoice QR code to verify the invoice.

E-Invoice sample

Relationship Between E-Invoice and E-Way Bill

The GST system integrates the e-invoice and e-way bill systems to ensure smooth invoicing and transportation procedures. An e-invoice, when created and verified through the Invoice Registration Portal (IRP), offers significant information including the Invoice Reference Number (IRN), Supplier’s and the buyer’s GSTIN, and the value of goods. The system automatically transfers these details to the e-way bill system, which then helps generate an e-way bill for transporting goods.

You need both e-invoice and the e-way bill when goods move over a certain distance or exceed a specific threshold. The e-invoice ensures the accuracy of issued invoices and compliance with tax regulations, while the e-way bill ensures the legal transportation of goods. Together with each other they eliminate inconsistencies in the reporting of GST and minimize the risk of fraud during the transportation of goods.

E-Invoice Applicability Criteria for Businesses

Currently, the implementation of e-invoicing in GST is based on the annual turnover of the business. The government has rolled out e-invoices in stages, thus increasing the coverage of additional taxpayers in every following period. The objective is to ensure all the businesses, falling under the specified criteria, transition to a unified and efficient invoicing model to increase tax compliance.

Who needs to implement E-Invoicing?

The mandatory e-invoice applicability follows a business’s turnover and at present, e-invoicing is mandatory from a turnover limit of ₹ 5 crore since the financial year 2017 – 18 onwards. This encompasses companies from various industries including manufacturing, retail, service industries and others that have subscribed to the GST regime.

The system calculates e-invoice applicability for turnovers based on the different GSTINs under one PAN across India. This implies that if the total turnover from multiple GSTINs under the same PAN is more than ₹5 crores, e-invoicing in GST is applicable for all of them.

Exemptions from E-Invoicing

E-invoicing is compulsory for many organizations, but there are also certain exemptions.

  • Special Economic Zones (SEZ) Units: E-invoicing is not applicable to SEZ units. However, SEZ developers are still not out of the equation.
  • Government Departments and Local Authorities: These entities do not have the obligation to adhere to the e-invoicing regulations.
  • Banking, Financial Institutions, and NBFCs: All insurance companies and other entities that fall under this category are exempt.
  • Goods Transport Agencies (GTA): The e-invoicing system does not apply to people involved in the transportation of goods through roads.
  • Passenger Transport Services: Car operators who transport people by road or through air transport are also exempt.
  • Retailers of Cinema Tickets: Another exclusion is businesses dealing with cinema tickets.

Such exemptions help to direct e-invoicing towards sectors where a high volume of invoice transactions take place in GST while the rest of the sectors can continue their activity without an additional barrier, that is e-invoicing.

Steps for E-Invoicing Implementation into an Existing System

It can be certainly challenging to transition into the E-Invoicing system if your organization has been following the traditional invoicing method to date. Follow these steps to successfully adopt and implement E-Invoicing in your business and experience an easy transition:

  1. Assess and Prepare: Assess how your current invoicing system will align with the E-Invoicing system. Verify that your current method of accounting can adhere to the GST e-invoice format and support e-invoice generation.
  2. Update Systems: If required, get more advanced E-Invoicing software or accounting system for the implementation of the GST E-Invoicing system. This includes compatibility with the Invoice Registration Portal (IRP) for real-time invoice validation and data integration.
  3. Register with the IRP: First, the business must register with the IRP, if it has not done so already. This registration will let you upload invoices, get the Invoice Reference Number (IRN), and receive E-Invoicing notifications.
  4. Generate and Validate Invoices: Start creating invoices in the prescribed e-invoice schema and upload them to the IRP. The IRP will then validate the invoice, assign an IRN to it, and affix a QR code. It is mandatory to fill in GSTIN, supply details, and other mandatory fields correctly.
  5. Integrate with GST Portal: Ensure your system integrates with the GST portal so that it automatically shares your data to facilitate GST reconciliation. This integration aids in proper GST return filing eliminating the need for manual input of data. Additionally, integrating your POS with the government portal ensures seamless data transfer and compliance.
  6. Train Staff: Train all the accounting and finance professionals on the new E-Invoicing processes and software. Provide them with tools and resources to help smooth out the transition and consistently guide them on potential difficulties.
  7. Monitor and Adjust: It is advisable to regularly check the E-Invoicing process to ensure that invoices are accurate, valid, and integrated. Make sure to listen to your employees to make any further adjustments to adhere to the E-Invoicing regulations.

Parties Involved in E-Invoice Generation

Several key parties play a critical role in maintaining the E-Invoice system and ensuring compliance:

  • Supplier: The entity preparing and delivering an invoice in an electronic format as required by the specific e-invoice system.
  • Buyer: The e-invoice is used and received by the recipient of the invoice for their records and for claiming the input tax credit.
  • Invoice Registration Portal (IRP): The government portal which validates the E-Invoice, generates IRN, and the QR Code of e-invoice.
  • GST Network (GSTN): It helps in the e-invoice transmission and their integration with other GST systems for the e-invoicing process.

Benefits of GST E-Invoicing

Benefits of GST E-invoicing GSTrobo

GST E-Invoicing benefits businesses in the following ways:   

  • Reduced Errors: E-Invoicing in GST ensures a standard procedure of generating invoices in a specified format and validation of the same by a government portal- IRP. This process not only minimizes the discrepancies but also simplifies the GST reconciliation process.
  • Automated Compliance: E-Invoicing in GST automates processes like e-way bill generation, auto-population of GST returns, and more, consequently reducing human intervention and administrative burden on businesses. This leads to accurate and timely GST return filing.
  • Increased Efficiency: Automated and standardized invoicing helps businesses save time and costs associated with manual efforts, adding to the efficiency of the entire tax system.
  • Reduced Tax Evasion: With real-time e-invoice reporting with the GST E-Invoicing system, it is quite difficult for businesses to find loopholes and underreport their sales or inflate their input tax credits. This way, the government achieves greater transparency and improved tax collections.
  • Enhanced Cash Flow Management: With faster reconciliation and real-time e-invoice validation, businesses can avoid delayed payments. This consequently results in improved cash flow management and better financial stability overall.
  • Efficient GST Audits: The e-invoice generation process facilitates easily tracible and verifiable invoices hence facilitating GST audits and making them straightforward. With easily tracible data, there are also minimum instances of disputes with tax authorities.
  • Supported E-Invoicing Compliance for SMEs: E-Invoicing for SMEs simplifies GST compliance for small and medium-sized enterprises, bringing them on a level playing field with large enterprises.
  • Better Legal Compliance: With the mandate of digital signatures in GST e-invoices, businesses ensure all documents are legally compliant and secure. This effectively protects them from potential legal concerns regarding invoice authenticity.
  • Environmental Impact: With no paper usage for E-Invoicing, it is a great step in terms of environmental concerns. Traditional invoicing, on the other hand, was dependent completely on paper invoices.

Conclusion

E-Invoicing has brought a revolutionary impact to the invoicing landscape in India, offering multiple benefits. While this blog informs businesses about E-Invoicing, it might not be enough. There can be multiple challenges when it comes to adapting to E-Invoicing. Such challenges call for a modern solution- GSTrobo! GSTrobo with its range of offerings including an automated E-Invoicing system helps businesses navigate their GST return filing processes effectively. All this while integrating seamlessly with your existing ERP. So, make a smart choice and opt for GSTrobo today.