e-Invoicing Initiative Ends the Under-reporting of Sales Turnover

The extension of the e-invoicing initiative to entities with Rs.50 crore concludes the practice of issuing informal sales invoices used to under-report the turnover. The requirement to report business-to-business (B2B) transactions to a government portal extended to even more small businesses make it harder to keep their retail sales under surveillance as the wholesale purchases have already been reported to the department.

The e-invoicing effect is two-fold. The first one is to make it easier for small firms to claim Input Tax Credit (ITC) for taxes already paid on wholesale purchases. The second one exposes them to questioning by the authorities if the sales are not reported. From 1st April 2021, businesses with more than Rs.50 crore sales will have to generate e-invoices on their B2B transactions.

The government intends to make this obligation apply to all B2B transactions later this year. This move shows the government’s idea of formalising the economy through Goods and Services Tax (GST).

GST is already helping in checking tax evasion and large businesses are compliant with the technology-driven tax system. E-invoicing keeps GST authorities informed about who purchased goods from a distributor. If a buyer does not report his eventual retail sales, the department can ask him to show the inventory.

Once fully rolled out, e-invoicing is set to give a solid push to the economy’s formalisation and give a significant boost to tax compliance in GST and income tax as under-reporting sales by small firms becomes harder.

The extension of e-invoicing across B2B transactions would make the GST one of the advanced information technology-enabled indirect tax systems among comparable size and diversity countries.

The challenge among small and medium enterprises for implementing mandatory e-invoicing is their readiness to manage data. As e-invoicing is being done in a phased manner, it is comparatively more accessible for small businesses to replicate large companies to implement solutions.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in