Everything you need to know about SIMPoL
In its 37th Council Meeting, the Goods and Services Tax Network approved the implementation of e-invoicing under India’s indirect taxation system, the Goods and Services Tax. Following the steps of 112 countries that have already adapted to various types of e-invoicing, India also decided to roll out the initiative that is expected to bring massive changes in the way tax returns under GST are processed.
e-invoicing or electronic invoicing is expected to be a phased manner for reporting of business to business (B2B) invoices to the GST System. While this mechanism is currently available voluntarily to companies that reach a specific turnover threshold, it will be made mandatory starting in October 2020. Under this mechanism, companies will be required to authenticate or validate their invoices electronically. Once the invoices are verified, they will be issued an invoice registration number which will then be used as a data of reference at various checkpoints under the GST framework. This mechanism is expected to iron out specific pain points under the GST system for both the taxpayer and the Government. For starters, it advocates the seamless flow of data between businesses through automation solutions. Next, it will significantly reduce the number of cases where data reconciliation will be required as errors caused due to manual data entry will be eliminated under this mechanism. e-invoicing is also expected to reduce paper usage, transaction costs and help keep up with compliance requirements. Finally, it will significantly reduce losses to the Centre as it will help curb fraudulent claims of input tax credit that is carried out through fake invoicing.
For an e-invoicing mechanism to work, companies and industry bodies need to adhere to a standardised invoice format. A prototype of the format was created in consultation with the Institute of Chartered Accountants of India in September 2019. It was then introduced on a public platform so that taxpayers could share their feedback with the GST Network. Once all stakeholders adopted the standardised schema, a mechanism under which two parties can seamlessly exchange their e-invoicing data was introduced. Finally, the e-invoicing as a mechanism will only be successfully integrated into a company’s day to day tax management operations, if the e-invoice can be automatically machine read and integrated into the buyer’s accounting data once the buyer validates it. While the first leg of the e-invoicing mechanism, viz. adapting to a standardised schema is simple enough, it is the next two steps that are critical to the success of e-invoicing. Therefore, needs a mechanism that will help integrate e-invoicing into the tax management process. This mechanism has been christened the Standard Invoice Messaging Protocol or SIMPoL.
Our whitepaper attempts to explain everything companies must know about the Standard invoice Messaging Protocol before they start adapting to e-invoicing including the mechanism, the stakeholders involved and their responsibilities and a brief walkthrough of scenarios of sales among taxpayers.
The Standard Invoice Messaging Protocol - an overview
Like we mentioned, the first leg of establishing e-invoicing in India is the adaptation of a standardised schema for invoices. While this is already done, it is only a small part of implementing e-invoicing in the country.
Invoice messaging is the foundation on which the GSTN will build the e-invoicing system. It is only through a standardised invoice messaging protocol that the entire mechanism will be able to seamlessly integrate the transmission of invoice information as per the standardised schema through a secure digital environment. This standard invoice messaging protocol will ensure the dispatch and reception of a standardised e-invoice for workflow-based processing. The critical question here is whether this exchange of invoice data should be made through a central portal or on a peer to peer basis. Let’s briefly understand the differences between both options.
| Central clearing house mechanism | Peer to peer exchange |
| All invoice data will be processed through one service provider. | Under this data exchange mechanism, the sender is expected to send an encrypted payload over the internet to the receiver or the receiver’s authorised invoice repository. |
| Excessive dependence on one service provider and the possibility of failure due to the inability to handle and process large volumes of e-invoices | Easier processing of data as long as each business entity has a well-defined endpoint to receive the payload along with header information identifying the sender |
| Will need a mechanism that will also be able to accommodate other documents used between players of the business ecosystem like purchase order, bill of supply, challan, payment information etc. | Will need a central resolver to provide a central repository of information about the entity such as the endpoint HTTPS URL, a Public Key that will be used for encrypting a payload sent to the GSTN etc. |
The invoice message flow between entities under SIMPoL
At the moment, it has been proposed that the flow between entities under the Standard invoice Messaging System be classified depending on the size of the taxpaying entity. In a nutshell, there is a separate flow for large taxpayers who are likely to align with an ERP to integrate e-invoicing into their tax practices and another for small taxpayers who are unlikely to hire an ERP but are still required to integrate e-invoicing. Let’s start with the general flow that has been proposed by the GSTN.
What role do SIMPoL stakeholders play in the success of e-invoicing?
To answer this question, we must first understand who the stakeholders of the SIMPoL mechanism are.
In a nutshell, SIMPoL stakeholders can be categorised as -
- Taxpayers
- Enterprise Resource Solutions Providers
- Business Name Registry Services
- Invoice Registration Portal Services
- Invoice and Business Service Aggregators
- Accounting and Billing Application Providers
- The Goods and Services Tax Network
Each of the stakeholders mentioned above will play an essential role in the successful implementation and integration of e-invoicing in the country’s indirect tax management system. Let’s understand how each stakeholder contributes to achieving this goal.
Taxpayers
Taxpayers will play a significant role in the successful establishment of the e-invoicing mechanism. They can be categorised into micro and small business entities, medium-sized business entities and large business entities based on their implementation and adaptation of tax technology.
- Micro and small business entities form about 60% of India’s indirect taxpayers but generally adhere to manual data entry work which is often riddled with errors. These business entities will be brought under the e-invoicing system through invoice and business service aggregators. Once they register under e-invoicing using their GST Identification Number (GSTIN) they will be provided with an APP KEY by invoice Registration Portals which will be used by their accounting application (desktop or mobile) to record and share the data with every payload emerging from that application. The application will then send invoicing in the standardised user formats to invoice aggregators who will generate the e-invoice as per prescribed schema. The e-invoice will be shared with the IRP for electronic authentication, who will then issue an invoice registration number to the invoice. Once authenticated, the aggregator will then resolve the endpoint with assistance from a business name registry service, encrypt the payload and convert the invoice to the taxpayer’s identifiable format and the same will be made available on the taxpayer’s accounting application for download.
- Medium-sized business entities already have some knowledge of tax technology and usually employ tax consultants or chartered accountants to help keep up with tax compliance requirements. To integrate e-invoicing into their tax management process, this category of taxpayers will be required the assistance of an invoice aggregator. These taxpayers will generate their invoice using invoice generation software which will then be sent to an invoice aggregator. The latter will then regenerate the invoice as per the e-invoicing schema and send the payload to an IRP for validation and issue of an invoice registration number. They will then resolve the endpoint with assistance from a business name registry service, encrypt the payload and convert the invoice back to a format that is identifiable by the taxpayer’s accounting software.
- Large-sized business entities account for a significantly smaller chunk of taxpayers under India’s indirect taxation system. They are expected to employ the services of an enterprise resource solutions provider and as such will have a well-defined and technologically inclined tax management process. These taxpayers will integrate with APIs that are aligned with the invoice registration portal and will be able to resolve the entity details before posting invoices to endpoints automatically. These taxpayers will need to collaborate with their ERPs to plug-in a solution to integrate e-invoicing. Once that is done, they will be able to register with an invoice registration portal and generate their own e-invoice as per the prescribed schema. They will then send the payload to the IRP for electronic authentication and issue of an IRN. Large taxpayers can then generate a visual form of their invoice for seamless user experience.
Enterprise Resource Solutions Providers
Enterprise Resource Solutions Providers will play a vital role in the establishment of e-invoicing and the Standard invoice Messaging Protocol. They will be required to generate plug-ins which will consume invoices as and when the taxpayer generates them. These invoices will then be converted to the standardised schema. ERPs will also need to write a program to seamlessly integrate the mechanism of connecting with the invoice registration portal for authentication of the invoice and issue of the invoice registration number.
Business Name Registry Services
Business Name Registry Services are centralised services that will be working to provide support on query and response. While the GSTN will initially control these services, they might be extended to other service providers in the future.
Invoice Registration Portal
Invoice Registration Portals or IRPs will be a faceless service to receive and process one invoice at a time on designated well-defined APIs. It will be the responsibility of an invoice registration portal to electronically authenticate and issue an invoice registration number to each invoice processed by them. This invoice registration number will be generated based on the taxpayer’s GST identification number, the financial and the invoice document number. After validating the invoice, the IRP will also check for cases of duplication among invoices.
Invoice and Business Service Aggregators
Invoice and Business Service Aggregators will play a significant role in establishing the e-invoicing process for small and medium-sized taxpayers. In a nutshell, they can be called brokers who will facilitate the e-invoicing by providing Open RESTful APIs to Small ERPs along with desktop and mobile applications that will provide accounting and billing solutions to smaller taxpayers. These aggregators will also help taxpayers convert their invoice to the prescribed schema and integrate with IRPs to validate the invoice and acquire the invoice registration number. They will then regenerate the invoice in a format that is identifiable by the taxpayer.
Accounting and Billing Application Providers for Mobile and Desktop
A good chunk of taxpayers fall under the micro to small-sized taxpayer category, and these taxpayers generally do not employ tax technology. This is where Accounting and Billing Software Application Providers for Mobile and Desktop will play a significant role in the establishment of e-invoicing. These application service providers will provide taxpayers with a set of accounting and billing applications for mobile and desktop, which will directly integrate with APIs aligned with the invoice registration portal. These application service providers will be able to perform a KYC activity and authenticate the taxpayer’s GSTIN. Once that data is validated, the IRP shall issue a license key to be stored with the application and will bind the mobile/desktop application used by the taxpayer. It is expected that the same software application should support multi-tenancy as there could be multiple GSTINs associated with a single application. Additionally, these stakeholders will also be able to assist medium-sized taxpayers in the future.
The Goods and Services Tax Network
The Goods and Services Tax Network will play a critical role in aligning the entire ecosystem of e-invoicing together while simultaneously acting as a regulator and governing body for this mechanism. The GSTN is expected to act as a centralised invoice registration number deduplication service that will ensure only a single IRN is issued for each string of constituent including GSTIN, document type, financial year and document number. The GSTN will also govern the business name registry service and be a repository for all e-invoices. Finally, the GSTN will be responsible for auto input of e-invoicing data when the taxpayer GST return files on the GST portal and e-way bill files on NIC portal.
Now that you know of the roles and responsibilities of each stakeholder under the Standard Invoice Messaging Protocol, let’s briefly walk you through scenarios of sales and purchase among various types of taxpayers.
| Seller | Buyer | How and where | How will the buyer get the purchase e-invoice | Remark |
| Large | Large | Seller’s ERP System | Buyer’s ERP system | Seller will directly resolve the destination address where the encrypted payload will be posted |
| Large | Medium | Seller’s ERP System | Accounting and Billing Invoice repository (Freemium model) | The buyer may either choose to use a free to use cloud repository with the web interface or can buy a service from authorized invoice archive service provider who will also add value add with the offline accounting tool. |
| Large | Small | Seller’s ERP System | Central repository (provided by GSTIN) with simple to use the web interface to download the same in CSV Format | While central repository will be made available with the minimum primary feature of viewing and downloading a CSV of an Invoice coming from Seller’s ERP system. The endpoint will be resolved by Seller of an Invoice Archive (Like Hotmail, Gmail Services). Alternatively, an Email address resolved through BNRS can be a recipient of the e-invoice. |
| Medium | Large | Accounting and Billing Invoicing system (Freemium Model) | Buyer’s ERP system | The taxpayer in this category need to use an accounting and billing application offline or online, to generate an invoice, send it to a defined destination resolved through resolving services BNRS. |
| Medium | Medium | Accounting and Billing Invoicing system (Freemium Model) | Accounting and Billing Invoice repository (Freemium model) | The taxpayer in this category need to use an accounting and billing application offline or online, to generate an invoice, send it to a defined destination resolved through resolving services BNRS. |
| Medium | Small | Accounting and Billing Invoicing system (Freemium Model) | Central repository (provided by GSTIN) with simple to use the web interface to download the same in CSV Format | The taxpayer in this category needs to use an accounting and billing application offline or online, to generate an invoice, send it to a defined destination resolved through resolving services BNRS. Alternatively, an Email address resolved through BNRS can be a recipient of the e-invoice. |
| Small | Large | Local System (In excel), uploaded on the portal after declaring the destination address | Buyer’s ERP system | The small taxpayer will maintain all invoices in a simple CSV /Excel format. They will need to use free-to-use Invoice archives. Once uploaded, they can choose to draft an email-like message with a destination address that archive will resolve and post. Alternatively, they can simply attach the invoice in an email and send it to buyer. |
| Small | Medium | Accounting and Billing Invoice repository (Freemium model) | The small taxpayer will maintain all invoices in a simple CSV /Excel format. They will need to use free-to-use Invoice archives. Once uploaded, they can choose to draft an email-like message with a destination address that archive will resolve and post. Alternatively, they can simply attach the invoice in an email and send it to buyer. | |
| Small | Small | Central repository (provided by GSTIN) with simple to use the web interface to download the same in CSV Format | Small taxpayer will maintain all invoices in a simple CSV /Excel format. They will need to use free-to-use Invoice archives. Once uploaded, they can choose to draft an email like message with destination address that archive will resolve and post. Alternatively, they can simply attach the invoice in an email and send it to buyer. |
Why start preparing now?
E-invoicing was supposed to be officially launched in April 2020. Still, it was later moved to October 2020 mainly due to two reasons - the significantly low response from taxpayers to whom e-invoicing had been made available voluntarily since January 2020 and also due to the Coronavirus pandemic and consequent nationwide lockdown. Recently, the Centre decided to scrap the launch of the New Returns System under GST, and the spotlight has fallen over the launch of mandatory e-invoicing in October 2020. This new enforcement, along with the revised turnover threshold, has created an urgency around addressing potential bottlenecks around -invoicing. With less than 45 days to launch, organisations need to acquaint themselves with its mechanism and adapt it as a part of their tax management process.
In the last year, enterprise resource solution providers have been altering their software solutions to accommodate this new mechanism or have created unique software solutions to help their clients align their tax management processes with e-invoicing.
Need help with e-invoicing? We're here for you.
Are you still wondering how can you get started with e-invoicing or what to do next? Look no further.
Avalara India GST e-Invoicing solution is a highly scalable, secure software which helps businesses seamlessly integrate their business systems through API to generate e-invoices with IRN and QR code or provide alternative methods based on their needs and budget.
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Avalara India GST e-Invoicing suite provides a comprehensive end-to-end solution for managing your Invoice Reference Number (IRN) and QR codes on e-invoices under GST compliance for businesses and ensures a smooth transition with minimum disruptions to current practices. With in-built data validations, businesses can be sure that there are less disruptions caused by rejected data on GSTN.
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