The advent of GST in India has taken the country to the ranks of many developed nations in terms of its tax administration. Starting 2017, India is climbing the ladder to becoming one of the top nations on the World Bank’s Paying Tax index. In 2020, when the world was reeling with the after-effects of Covid-19, the Indian Government took the bold step to launch one of the largest reforms – e-Invoicing.
With effect from 1st October 2020, the businesses with turnover exceeding Rs. 500 crores were mandated to generate e-Invoices. The eligible businesses were required to upload their invoices on Invoice Registration Portal (IRP) which threw back a unique Invoice Reference Number (IRN). The said IRN is also then encrypted in a QR code and embedded on the invoice and contains all details such as GST registration numbers of the supplier and recipient, date of invoice generation, the invoice number, and the invoice value. This mandate was then extended to all businesses with turnover greater than Rs. 100 crores from 1st January 2021 and Rs 50 crores from 1st April 2021.
How Is e-Invoicing Making A Difference?
Right after the e-Invoicing was made applicable, from November 2020 onwards, India saw its GST collections rise and reach the Rs. 1 lakh crore mark. This rise was consistently noticed in the subsequent months from December 2020 to March 2021. This is due to the fact that e-Invoicing has enhanced the GST compliance quotient of the country significantly. In the first month itself, India saw nearly five crore e-Invoices being raised by 27,400 taxpayers. This number is mammoth, especially when the first phase only encompassed the businesses with turnover exceeding Rs. 500 crores. Even apart from compliances, the real–time availability of data has become the source of identification in case of tax frauds and scams. The prominence of e-Invoicing can also be predicted from the fact that the Finance Secretary also suggested that e-Invoice would soon replace e-Way bills as well.
Even from the business’s perspective, e-Invoicing is proving to be a turning point. This is due to the fact that e-Invoicing cannot be said to be only a compliance activity. It automates several business functions and improves processes such as procurements, invoicing, payables, receivables, sales, tax, etc. provided the information is used and incorporated at various business process levels. Moreover, it is pushing businesses towards digitalization and automation, which in the long run will prove to be of utmost value.
One of the major concerns of businesses post introduction of GST is reconciliation. Reconciliation under GST is not limited to any two or three specific areas. The following are some reconciliations that are required to be done regularly:
- GSTR 2A vs GSTR 3B
- GSTR 2A vs ITC ledger as per books of accounts
- GSTR 2B vs ITC ledger as per books of accounts
- GSTR 1 vs GSTR 3B
- GSTR 1 vs e-Invoices
- GSTR 1 vs e-Way bills
- GSTR 9 vs books of accounts
It is a herculean task to complete these reconciliations if done manually. Moreover, a manual reconciliation system is prone to errors; it is inefficient in terms of time consumed and dependability on the specific team members. Lack of audit trail is also an issue in the case of manual reconciliations. e-Invoicing is proving to be a blessing as far as reconciliations are concerned. This is due to the following reasons:
- e-Invoicing is all about digitalization and automation. Once an e-Invoice is generated, the necessary details are pre-filled in the e-Way bill portal. Moreover, the GSTR-1 also fetches details from the IRP and auto-fills necessary fields in the GSTR-1. This results in minimal errors being committed when raising e-Way bills and filing GSTR-1. Lesser errors mean lesser reconciliations to be done.
- On the input side, the reconciliation of ITC is a large issue; both for the taxpayers and revenue authorities. e-Invoicing would result in a reduced mismatch in ITC claims and timely communication of any mismatches. Therefore, the current issue which has distressed the entire GST chain – of taxpayers availing ineligible credits and revenue reversing eligible credits can be resolved. The GST rules which are being heavily litigated such as Rule 36(4), 86A, 86B of CGST Rules, 2017 may not be required, once India adopts e-Invoicing for all businesses.
- The standardization of Invoice format across all sectors and businesses is another reason that reconciliations would become simpler. Also, the fact that the invoices are machine–readable adds to the advantages when it comes to the reconciliation of e-Invoicing. A simple BoT can read and reconcile invoices in a fraction of time as compared to manual reconciliations.
- Once the output and input GST are reconciled to a large extent with the help of e-Invoicing, there is hardly a need for a full-blown manual reconciliation activity. This saves a considerable amount of time for tax teams within organizations. Also, if the e-Invoicing system of an organization is integrated with automated reconciliation solutions available in the market, the process can become heckle-free for businesses, rarely requiring any manual intervention.
There are still certain businesses that are outside the ambit of e-Invoicing such as banks, financial institutions, GTA, SEZs, businesses with turnover less than Rs. 50 crores etc. Though, these sectors/ organizations enjoy an exemption currently, they shall be included in the ambit of e-Invoicing once the scheme settles. Therefore, it is time that these sectors also start prepping for e-Invoicing sooner than later.
Another important aspect to ponder upon is that though GSTN has rolled out significantly easy methods of raising e-Invoices, it is always better to opt for a comprehensive GST solution which not only helps the businesses in raising e-Invoices but ensures compliance with GST returns, carries out reconciliations, raises e-Way bills, all as a part of a single software such as Cygnet GSP solution. This entails a seamless flow of data and avoids any data lapses, enhancing the GST experience for taxpayers across India.