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E-Invoicing Under GST: Part 2 - E-invoicing and the Tax Department

  • Feb 9, 2020 | Divita S Gupta

E-invoicing under GST was introduced more than a month ago and yet there are questions on the need, working and overall benefits of introducing e-invoicing. This article helps you understand the steps taken to implement e-invoicing and the agenda behind this game-changing move on part of the government.

For starters, e-invoicing is not a new feature, nor is India the first country to introduce e-invoicing. E-invoicing as a system, has been implemented by  tax departments across the globe. More than 60 countries have already adapted e-invoicing with highly beneficial results.

To explain e-invoicing in layman terms, it consists of two fundamental steps –

  • Generation of invoice in a standard format or government prescribed schema so that invoice generated on one system can be read by another system.
  • Reporting of e-invoice to a central system.

Let's talk about step one.

Unlike popular belief, e-invoicing does not mean generation of an invoice through a centralised Government portal - that would be highly inconvenient. Taxpayers use different invoice generating software, some don't use software at all and manually prepare invoices - at each point, there are opportunities for human error. Additionally, the invoices generated by one accounting software cannot be read by another accounting software - so if a supplier uses one accounting software like Tally and a buyer uses another accounting software like NetSuite, the invoices generated from each cannot be read by the latter. So when an invoice is sent from a supplier to a buyer, an employee will be required to manually re-enter the data - again, large scope for human errors. The aim behind adopting an e-invoice system by tax departments is to facilitate the pre-population of returns and to reduce reconciliation problems - to do so, they need to nip the issue of multiple and erroneous data entry in the bud - viz. at invoice generation. Hence, a standard e-invoice has been generated after consultation with authorised accounting bodies and after taking into consideration public opinion. This standard invoice doesn't change the way a user would see their final invoice - it simply documents certain fields to allow pre-population, thereby eliminating the need for data entry at multiple points and readability through any accounting software.

The GST Council has given the responsibility to design the standard of e-invoice and update the same from time to time to GSTN which is the custodian of Returns and invoices contained in the same. Adoption of e-invoice by GST System is not only part of Tax reform but also a Business reform as it makes the e-invoices completely interoperable eliminating transcription and other errors. This standardardised invoice format has been designed keeping in mind the already existing schema referred by Pan European Public Procurement Online, which works on Universal Business Language version of electronic XML. It is the most popular standard used across the globe.

Now, step two - reporting the e-invoice to the central GST portal.

One the e-invoice, along with other relevant and required documents is submitted to an IRP which in turn, generates an Invoice Reference Number or IRN. It then digitally signs the invoice and creates a QR code in Output JSON for the supplier. The buyer is also intimated of the e-invoice validation via email. This authenticated payload is sent to the GST portal for return filing by the IRP. Details are also forwarded to the e-way bill portal for generation of e-way bills. Additionally, ANX-1 of the seller and ANX-2 of the buyer gets auto filled for the relevant tax period, determining tax liability.

In two simple steps through one tax reform, e-invoicing is all set to make accounting and taxability, simple and efficient.

To know more about our E-invoicing and GST compliance solutions, contact us here.

Follow our E-invoicing under GST Series on the links below:

  1. E-Invoicing Under GST: Part 1 - What is an e-invoice?
  2. E-Invoicing Under GST: Part 2 - E-invoicing and the Tax Department
  3. E-Invoicing Under GST: Part 3 - Benefits of e-invoicing
  4. E-Invoicing Under GST: Part 4 - Documents to be reported under e-invoicing
  5. E-Invoicing Under GST: Part 5 - How does e-invoicing work?
  6. E-Invoicing Under GST: Part 6 – E-Invoicing Workflow from Supplier to Invoice Registration Portal
  7. E-Invoicing Under GST: Part 7 - Workflow from IRP to Buyer and GSTN or E-Way Bill System
  8. E-Invoicing Under GST: Part 8 - Everything you need to know about Invoice Registration Portal
  9. E-Invoicing Under GST: Part 9 – Features of e-invoice system you need to know
  10. E-Invoicing Under GST: Part 10 – How to register your e-invoice
  11. E-Invoicing Under GST: Part 11 - Myths around e-invoicing
  12. E-Invoicing Under GST: Part 12 – Frequently asked questions on e-invoicing

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. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.