Getting Ready for Phase 3 of e-Invoicing and Handling Practical GST Challenges [Expert Insights]

  • With Phase 1, 2 and now Phase 3 of the new e-Invoicing decree rolled out for all companies with an aggregate turnover of INR 50 crore or more; businesses are definitely feeling the heat.
  • But there is definitely a concern about the limited time that companies have to bring their existing IT systems up to speed to be e-Invoicing compliant. 
  • Avalara brings in the experts to guide us on how businesses can best prepare themselves in this regard.

Starting the 1st of April 2021, all registered businesses with an annual aggregate turnover of INR 50 crores and above have to adhere to the e-Invoicing guidelines mandatorily. Electronic Invoicing, or e-Invoicing as we know, 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) or XML. With a tight window provided for SMBs to ensure compliance, there is now a mounting concern over how one should go about getting ready for this change. Avalara hence decided that this was a concern best addressed by the experts in this field. With the phase 3 kick-in just round the corner, Avalara hosted a webinar on Getting ready for Phase 3 of e-Invoicing and handling practical GST Challenges.

We were joined by the GST expert, CA Swapnil Munot and Mr. Chandrashekar Ramaswamy, Director - Product Management at Avalara. We discussed what the e-Invoicing journey consisted of so far, the primary challenges that businesses might face, and how to prepare ourselves to combat these roadblocks.

e-Invoicing - The journey so far

Swapnil kicked off the session by remarking on how e-Invoicing, although a concept well over 20 years old, as a mandate, marks a new era under GST as well as under the Indian economy. E_invoicing has primarily been developed in Europe and has been implemented globally in various countries. It has proved to be a game-changer and advantageous to both businesses as well as the government. According to the Bruno Koch study by Billentis, the global e-Invoicing and enablement market is set to reach an approximate value of EUR 18 billion by 2025.

But why is the government in India pushing this reform?

The question arises as to why this reform is being pushed for by the government. Well, it is estimated that over 1 lakh, 20 crore GST fraud cases and ITC mismatches have currently been detected in India. Hence, this mandate is being brought in to eliminate any gaps from the taxation perspective, leading to the complete automation of processes such as tax declarations, deductions, and reclaims. Automating these processes will also reduce the need for tax audits as all relevant data will be streamlined and available to the authorities at the touch of a button.

Myths about e-Invoicing

Debunking some common myths that business owners might have regarding e-Invoicing, Swapnil highlighted the following points.

  • Do businesses have to generate e-invoices from a separate government portal?

No. e-Invoices will be generated from a company’s ERP system like before. This ERP system will be linked with the Invoice Registration Portal (IRP) to validate the invoice particulars that in turn generates a unique invoice reference number (IRN) with a signed JSON as a response.

  • Is generating an e-Invoicing going to be a time-consuming activity?

No. e-Invoice generation typically takes very little time, and the Invoice Registration Portal (IRP) generates an Invoice Registration Number (IRN) in a matter of a few seconds.

  • Is e-Invoicing applicable only to companies meeting the aggregate turnover criteria in the financial year 2020-21?

No. e-Invoicing applies to all companies that meet the aggregate turnover criteria (INR 50 crores or more) for any of the preceding financial years from 2017-18.

  • There are no exemptions under the e-Invoicing mandate.

No. Based on factors such as revenue, the volume of transactions, etc., some of the entities for whom e-Invoice is not applicable include:

  • Business units in Special Economic Zones (SEZs). However, SEZ developers are not exempted.
  • Insurance agencies
  • Banking and finance companies
  • Passenger transportation services
  • NBFC (Non-Banking Financial Companies)
  • NIL-rated or wholly-exempt supplies
  • B2C supplies    
  • Suppliers of services by way of admission to exhibition of cinematograph films in multiplex screens
  • Persons registered in terms of Rule 14 of CGST Rules (OIDAR)

How can companies prepare for e-Invoicing?

Here is a comprehensive checklist for companies to go through to prepare themselves for e-Invoicing better:

Check your e-Invoice applicability

  • Any business whose PAN-based aggregate turnover is more than INR 50 crores from the year 2017 onwards is applicable
  • Aggregate turnover includes - Taxable supply + Export + Exempted supply + Non-taxable supply
  • Aggregate turnover DOESN’T include - CGST / SGST / IGST

Know about inclusions and exclusions

  • e-Invoicing is required for:  
    • Transaction type - B2B, Exports
    •  Document type - Invoice, GST debit note, GST credit note
    •  Supply category - Taxable supply
  • e-Invoicing is NOT required for:  
    • Transaction type - B2C
    •  Document type - Bill of Supply, delivery challan and any other document as specified
    •  Supply category - NIL rated, exempted and Non-GST entities exempted as specified   

Check your e-Invoice enablement on the e-Invoice portal

Technical and logistical considerations

  • Fact check on the transaction volume
  • Understand if your internal systems can consume APIs
  • When uploading spreadsheets, use a standard format for quick implementation

Additional Considerations

  • Identify and categorize the transactions applicable for e-Invoicing. For example, export sales, imports, asset transfers, etc.

  • Collect and update all the necessary customer data for e-invoicing, such as their bank details, PIN code etc.

  • Collect and update all the necessary customer data for e-invoicing, such as their bank details, PIN code etc.

  • Alter your GST returns process to segregate your B2C and B2B supplies. This way, all B2B transactions get auto-populated in the GST returns, while B2C supplies can be manually uploaded.

  • Train the tax/finance teams to achieve the best results when generating e-Invoices.

Challenges to Anticipate

So what are some of the challenges that SMBs should be aware of?
  • First and foremost, most SMBs face a challenge in how well-equipped they are in terms of their technology. Most SMB’s IT infrastructure tends to be immature and needs to be updated to suit the new e-Invoicing requirements.
  • Employees need to be extensively trained to make them proficient with e-Invoicing.
  • Since IRP only stores the invoice for 24 hours, companies with a high business volume should have sufficient storage to generate and store e-Invoices.
  • Further, invoice storage can also become an issue for businesses whose volume or quantity of invoices is high as the Invoice Registration Portal only stores the invoice for 24 hours.
  • Considering the absence of time, SMBs will face a financial challenge when upgrading their ERP and other IT systems to fit the e-Invoicing requirements.

Benefits of e-Invoicing

So, what benefits can business owners expect from complying with the e-Invoicing mandate?

As stated earlier, one of the primary reasons for the government pushing for the e-Invoicing reform is to cut down on GST fraud cases and ITC mismatches. Due to the automated nature of the critical invoicing process, e-Invoicing will eliminate fake invoices. With e-Invoicing, invoice data is available in real-time to the authorities, cutting down on the need for manual tax declarations, deductions, reclaims, and tax audits. With the readily available e-Invoicing data, taxpayers can automatically generate GST returns as there will be a complete record of overall sales and purchase under the GST system. Also, by cutting down on manual entry, there will be less data duplication, data entry errors and reconciliation issues.

Additionally, e-Invoicing will also reduce the government’s compliance burden and lead to a substantial reduction in input credit verification issues.

How can Avalara Help?

Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently.We will ensure that you are thoroughly prepared with your e-invoicing and GST compliance technology stack for the  recent Phase III roll-out of e-invoicing.

Get in touch with us to:

  • Understand your specific business scenario 
  • Assess your e-invoicing requirements
  • Evaluate your ERP updates and integration needs
  • Propose the right approach
  • Set up your e-invoicing solution 
  • Automate GST returns and e-way bills
  • Make invoice reconciliation a cakewalk
  • Integrate GST calculation engine, if required
  • Help with GST registration, if required
Reach out to us for a free consultation session.
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