Latest updates on e-Invoicing - The 3rd phase and all it includes

  • Phase 3 of the new e-Invoicing decree is all set to roll out in India from the 1st of April 2021.
  • According to the latest notification by the government, the mandate now extends to all registered businesses having a turnover of INR 50 crores and above.
  • In this blog, we try to throw light on what changes SMBs can expect, exempted categories from the new rules, and how businesses should prepare themselves to meet the tech requirements for e-Invoicing.

Electronic Invoicing or e-Invoicing involves the generation and exchange of a structured invoice document between a seller and a buyer in an electronic format such as Electronic Data Interchange (EDI), XML, etc. Although originally proposed to prevent fraud and tax evasion in India during the 2019 Budget, the Covid-19 pandemic stalled the initial implementation of the e-Invoicing mandate. Starting from October 1, 2020, however, the Central Board of Indirect Taxes & Customs (CBIC) has rolled it out in a phased manner. Let’s see a quick recap of what things have been like so far.

A Quick Recap

With e-Invoicing now a mandatory requirement for most businesses under the GST system, a majority of B2B businesses now have to generate their invoices in an electronic format, and these also have to be electronically authenticated by GSTN. From now on, invoices will be sent in a standard digital format to the Invoice Registration Portal (IRP).

It is being launched in a phased manner to incorporate businesses based on their turnover. The three phases declared are as follows

  • Phase 1: From October 01, 2020, e-invoicing is mandatory for all Business-to-Business (B2B) transactions in companies with a turnover of INR 500 crore or more.
  • Phase 2: From January 01, 2021, every registered entity with an aggregated turnover of over INR 100 crore in a year will adhere to the e-invoicing mandate for all B2B sales. 
  • Phase 3: Starting from April 1, 2021, e-Invoicing is mandatory for all registered B2B businesses with an annual turnover of INR 50 crores.

 

Let’s focus on Phase 3

While earlier the 3rd phase was supposed to allow sandbox testing for ERP integration in companies with a turnover of INR 50 - 100 crores, the latest notification by the government on March 8, 2021, clarified that the bottom threshold for mandatory e-Invoicing has now been set to all registered businesses with a turnover of INR 50 crores and will be applicable starting April 1st, 2021.

Entities that fall below the INR 50 crore mark have been exempted from this rule but can be brought under the ambit in later phases.

Who is exempted from this mandate?

So who is exempt from the e-Invoicing decree?

Based on factors such as revenue, the volume of transactions, etc., some of the entities who are not required to comply with the new rules mandatorily are:

  • Businesses with a turnover of less than INR 50 crores  
  • Businesses in specific Special Economic Zones (SEZs)  
  • Insurance agencies 
  • Banking and finance companies 
  • Goods transport agencies  
  • Passenger transportation services 

How will e-Invoice impact various compliance processes for SMBs?

  • Paperless invoice management - By helping businesses embrace paperless invoice management, e-Invoicing will help standardize and organize the current invoice communication method between enterprises' digital systems.
  • Reduction in data errors - Auto-population of returns helps drastically cut down on data duplication and data entry errors. 
  • Reconciliations under GST - Since the e-invoice data will get auto-populated under several fields of GST returns and e-way bills, e-Invoicing will help the reconciliation process. 
  • Quick access to Input Tax Credit (ITC) - Since e-Invoicing helps track invoices in real-time, businesses can now access their ITC much sooner. 
  • E-way bills - By opting for a comprehensive e-invoicing solution along with an e-way bill generation module, businesses can facilitate the auto-generation of e-Way bills by just updating vehicle details while generating the e-Invoice. 
  • ITC claims under the GST return - The introduction of e-invoicing will directly affect ITC since both the supplier and buyer invoice data will be auto-populated, reducing data reconciliation errors and leading to faster processing of ITC claims. 
  • GST refunds - The auto-population of returns in e-Invoicing also helps businesses who want to claim any GST refunds involving ITC, exports, RCM, etc. 
  • GST audits - With e-Invoicing, all invoice data and the tax liabilities are auto-generated and accessible to the GST authorities at any time. Easy data availability means more efficient, quick, and also fewer data audits.

What happens if you do not comply with the rules?

  • Non-issuance of e-Invoice

If you are a business with an annual turnover of INR 50 crores or more, you will have to generate an e-Invoice for every B2B transaction mandatorily. If you do not register an invoice on IRP, then it is implied that you have not informed the government about the transaction.

An invoice issued by a supplier without a corresponding IRN is now considered invalid for all GST-related matters. It will incur a penalty equivalent to 100% of the tax due or INR 10,000, whichever is higher.

  • Incorrect e-Invoice

If the details entered during the invoicing are incorrect or fraudulent, then a penalty of INR 25,000 will be levied on the taxpayer.

  • E-way Bill

If a supplier tries to transport goods without a valid e-Invoice and the corresponding E-way bill, the risk of seizure of goods and the levying of hefty fines increases multiple folds due to non-compliance.

In Conclusion

The biggest challenge now for the companies is to get their technological systems up to speed considering the fast-approaching deadline. Businesses in the mandated segments will have to expedite the implementation of IT and software changes.

Seeing how e-Invoicing can impact crucial aspects of business such as ITC claims, GST refunds, audits, etc. Keeping in mind the penalties levied on non-compliance, businesses must map-out a clear path for the required process changes and roll them out at the earliest.

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