FISME: e-Invoicing Might Be a Challenge for Small and Micro Businesses

The Central Board of Indirect Taxes and Customs (CBIC) made e-invoicing mandatory from 1st October 2020 for businesses whose turnover is more than Rs.500 crore (in any financial year from FY 2017-18 onwards). From 1st January 2021, businesses exceeding Rs.100 crore in turnover had to implement e-invoicing. The government has recently notified to extend e-invoicing to businesses with a turnover of more than Rs.50 crore from 1st April 2021.

Each financial year from 2017-18 onwards will need to be considered for determining turnover for Rs.100 crore and Rs.50 crore category of businesses. As per the revised MSME definition, businesses with turnover ranging from Rs.51 crore to Rs.250 crore are classified as medium units.

The Federation of Indian Micro and Small & Medium Enterprises (FISME) stated that the government’s move to implement e-invoicing for businesses having more than Rs.50 crore turnover is a welcome move. However, it raised the concern that the micro and small businesses that have not invested much in technology and that lack digital literacy might face problems during the implementation.

The FISME stated that it could be assumed that the business with over Rs.50 crore turnover is digitally literate in managing their accounts. However, some preparedness will also be required if the government extends the e-invoicing mandate to micro and small enterprises, i.e., below Rs.50 crore turnover businesses. In that case, it might be a problem as they do not invest much in technology, and most of the work is outsourced. It will become an additional cost burden for them, and broadband connectivity could be a problem for firms in small towns and villages.

Also Read: Fresh e-Invoicing guideline for taxpayers with turnover ranging from Rs.50 crore to Rs.100 crore

According to the MSME Ministry’s FY20 annual report, out of 6.33 crore MSMEs, over 99% are micro and small businesses in India. The report stated that there are only 5,000 medium enterprises, and the number of small businesses is 3.31 lakh and micro-enterprises is 6.30 crore.

The e-invoicing initiative allows immediate validation of the tax invoices, which is beneficial for both the taxpayer and Input Tax Credit (ITC) recipient. The data errors and reconciliation requirements may get reduced significantly. However, mid-sized businesses that do not have a well-equipped in-house IT team will incur capital expenditure and operating expenditure.

It includes modifying accounting systems to adhere to the e-invoicing, integrating their accounting systems with the IRP portal either through APIs or third-party software, and undergoing detailed training for the staff to get habituated to the e-invoicing norms and accounting infrastructure.

However, it is to be noted that e-invoicing initiative brings more transparency and make them more formal to benefit from government schemes. The e-invoicing system is also likely to help businesses in accessing credit facilities from the banks. The GST system would populate the required reports and returns based on details available in the e-invoice.

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