e-Invoicing was introduced in GST to promote machine readability and plug holes in data reconciliation and tax evasion. It allows standardisation of invoices reported across India.
The first stage was rolled out from 1st October 2020 to enterprises that exceeded an annual aggregate turnover of Rs.500 crore in any of the preceding financial years (starting from 2017-18). The applicability of this new reform will soon apply to all enterprises with an annual aggregate turnover of more than Rs.100 crore, from 1st January 2021 onwards.
The law stipulates penalties for not generating and using the e-invoice. Penalty for not issuing an e-invoice is the higher of 100% of the tax due or Rs.10,000, while the penalty for the incorrect or incomplete e-invoice is Rs.25,000. The cost of non-compliance or delay in compliance will not only attract penalties but also leads to loss of reputation and credibility in the market. The enterprise ultimately may have to lose customers or clients, thereby losing its market value.
An ideal e-invoicing integration needs four to six weeks for setting up and testing. The businesses with a total turnover of more than Rs 100 crore are ideally expected to have by now begun with the trial and testing phase of running the e-invoicing system.
With less than a fortnight left, it’s never too late to ensure the compliance of tax laws. Here is a guide for a timely setup and smooth implementation of the e-invoicing system.
Evaluate all these factors to decide on the suitable mode to generate e-invoices:
(a) Transaction volume and the number of branches: Depending upon the volume of transactions dealt with by your enterprise, you may select either system integration or excel tool.
An enterprise having a huge volume of transactions should pick ERP integration as its choice for e-invoicing. It will benefit in the long run in terms of costs and reduction in human errors.
(b) IT policy and security levels of the enterprise: An enterprise not having an in-house IT team or that follows strict security measures, can choose the SSH File Transfer Protocol (SFTP) based system integration. SFTP-based integration is suitable for the organisation with huge transaction volume while demanding minimal configuration to your existing ERP. Under this type of integration, the invoices initially are moved to an SFTP folder and later on to the IRP for IRN generation in batches. Whereas, an enterprise that has an IT policy allowing end-to-end integration can go for the Application Programming Interface (API) based integration. It enables the real-time generation of IRN for every invoice.
(c) Costs to be incurred: Excel tool available on the e-invoice portal is free of cost. However, it involves significant manual efforts. To avoid manual efforts, make use of systems integration, which comes at a relatively higher cost, benefiting in the long run. Under systems integration, SFTP based integration is comparatively more reasonable to API integration.
(d) Automation levels: If your enterprise prefers to operate automatically with less manual intervention, then it is ideal for integrating using the API-based approach. It also depends on how complicated the billing/ERP system is, since the more complex the system, the more automated the path to integration should be.
Choose your e-invoicing vendor once the mode is finalised:
Integration of e-invoicing can be done directly or through the GST Suvidha Provider (GSP). The benefits of using a GSP involve the outsourcing of sandbox testing and assurance of IT security and regulatory requirements. The GSP can take care of all aspects of implementation, allowing smooth integration.
It would help if you considered specific parameters such as the costs involved are one-time or recurring, whether or not the vendor can integrate with the current ERP systems, option for staff training, whether the vendor can ensure timely maintenance of the systems, etc.
Testing and Monitoring the e-Invoicing system:
Before the e-invoice framework finally goes live to generate e-invoices, sandbox testing will need to be carried out. Ensure that the operating team is adequately trained about their roles, steps involved in e-invoice generation, awareness of the law, error-handling, maintenance schedule for handling the system effectively, etc.
Moreover, like any other ERP system, an e-invoicing system needs to be reviewed periodically to assess the level of performance. Timely actions must be taken for any glitches or loopholes in security.
A word of advice to enterprises yet to begin with the e-invoicing implementation. Have a temporary system in place to ensure compliance for a few weeks of January 2021 until system integration is complete. You can make use of the bulk-generation excel tool available on the e-invoice portal temporarily. At the same time, you can set up and test the ERP integration with a suitable vendor.
The count of e-invoices generated will only increase in the coming months as the system expands to cover more businesses. As per the data released by the National Informatics Center (NIC), the first month of e-invoicing implementation registered creation of about 495 lakh e-invoices by 27,400 taxpayers. The daily numbers also have risen from 8.4 lakh e-invoices on 1st October 2020 to 35 lakh e-invoices by 30th October 2020. The monthly e-invoice volumes increased to 560 lakh e-invoices for November 2020, as per data published by Business Standard, recording more than 10% jump, M-o-M basis.
In the medium term, the Finance Secretary hopes to replace the e-way bill system completely and repeal the GST return system for the MSME sector. It can be said that the penalties on non-compliance of e-invoicing rules are expected to be increased going forward. Hence, e-invoicing is going to be a crucial part of the GST ecosystem that every business must eventually be prepared for.
For any clarifications/feedback on the topic, please contact the writer at firstname.lastname@example.org
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.