Recently, the Central Board of Indirect Taxes and Custom (CBIC) introduced the electronic invoice mandate. Businesses with more than 100 Crores annual turnover have to comply with this mandate. It remains optional and on trial basis for businesses less than 100 crores turnover.
While this has drawn mixed reactions from India Inc, it is important to understand the vitalities of this mandate. Let’s try and understand the answer to 10 important questions related to the mandate.
What are the salient features of this e-invoice rule for corporates?
As per the new invoice rule by CBIC, B2B Service providers will have to generate Invoices in a standard format which will be electronically authenticated by GSTN for further use on the common GSTN portal and eWay portal.
- It does not mean that the invoices have to be generated from the tax department portal. This will have no impact on how one sees an invoice in its physical or electronic form.
- It only specifies a standard invoice format (Schema) to ensure interoperability among various softwares and business/tax systems.
- An invoice generated in this standard format will have to be reported to the Invoice Registration Portal of the GST. The portal will generate an IRN(Invoice Reference Number), Digitally sign the invoice and generate a common QR Code.
- QR Code will have the vital parameters of the Invoice and it will be sent to the IRN generator
- The signed copy of the eInvoice will also be sent to the recipient of the invoice basis the email ID mentioned there.
- Since the Invoice is already registered at the IRP, information is sent to the GST Portal and eWay portal in run time thus eliminating any manual intervention earlier required for filing or reconciliation.
Why was this introduced by the body?
This will serve multiple purposes:
- Reduce manual effort of Reconciliation, reporting/uploading for multiple formats GSTN, e-way bill.
- Ensure smoother interoperability across various systems. At Refrens, we are also working towards this goal to suit the needs of the new e-invoice system.
- Since one common IRN, it will have complete trail of B2B Invoices to reduce tax evasion
- Further to reduce tax evasion, the details about Input credit and output tax will be more transparent
Which are some other developing nations that are already following this practice?
Some of the countries who have already adopted the system include Chile, South Korea, Brazil Mexico, Canada, Sweden, Norway, Peru, Denmark, Italy, Turkey etc,
How will this rule curb GST evasion and financial crime?
Since the eInvoice rule will be more technology driven to generate real time reporting of transactions, it will not be possible for businesses to inflate their input tax credit to minimise tax liability. Splitting of bills to keep them under the threshold cap will also reduce since the reconciliation will be done automatically by the system. It is expected that apart from these, there will be more benefits when it comes to GST Evasion etc.
In addition to tax compliance, what are the other benefits of this e-invoicing mandate for the corporate ecosystem and the government?
This mandate is very beneficial for India Inc. otherwise as well. This would ensure that the invoice generated by one system is completely readable by the other which is a big problem now and needs a lot of manual effort (and hence cost). Manual intervention spent in reconciliation across various tax platforms will also reduce since this would be done automatically on a real time basis.
How will this digital invoicing help in standardization of processes, especially amongst the large and unorganized SME segment?
This will help this segment to adopt technology solutions of generating Invoices who might currently be using a pen and paper method thus spending a lot of time in invoice creation, returns filing etc. Post the e-Invoice regime, they would just have to create an Invoice using software and upload it in IRP. Most of the work will then be taken care of by the IRP itself. So by and large, they will be making lesser errors and transparency will increase.
How can companies prepare for this new regime?
GSTN has already empaneled 8 free accounting and Invoicing service providers to ensure a smooth transition to the new regime. They will come in both online and offline flavours. Of course, the features in the free package will be limited but will suffice the generation of an IRN. It is upto businesses to buy add on features on a usage basis. It is expected that other similar softwares will follow suit and adopt themselves to the new regime. At Refrens, we are already tuning our solution to adopt the new e-invoice regime.
Many of these SME companies still rely partially on manual processes and do not have CRM or ERP solutions. Will they now have to deploy these solutions or work with fintechs to comply with the new e-invoicing norms?
It is understandable that many companies are yet to use any CRM or ERP Solutions. However, there is absolutely no need to panic. In fact, it is easier and more convenient than before. They just need to adopt an Invoicing or accounting software. It is a standard template now, so understanding the template is a one-time job. All the returns filing etc. would be taken care by the portal through real time filing.
In the case of SME companies, does this increase the dependency on external experts to help them with the e-invoicing, or can they do it themselves with the help of automation? Please give an elaborate explanation for your answer.
As mentioned above, due to a standard template and most invoicing platforms adopting it, movement to a new platform should be easier than thought of. The overall process is going to be more standardized and will have a smooth learning curve. So we believe there should not be a high dependency on external experts. At the moment, it looks like uploading a simple file and the rest of it will be taken care by automation.
How can e-invoicing curb fraud in trade finance and supply chain financing, which was earlier dependent on manual processes and paper documentation?
Trade finance frauds based on invoices are very common. Frauds can range from simple inflation of invoice value to sharing of the same invoice to an international and Indian bank thus seeking double financing on the same invoice. With more technology adoption, the invoices will have to be electronically generated thus eliminating chances of invoice inflation. Since all Invoices will be registered on the IRP, there will be greater transparency, we can expect cases of double financing etc. to reduce as well.
We hope these answers would have answered a lot of your questions related to rationale, precedence and life after its implementation. And next time you create an invoice, do remember to use Refrens