A Goods and Services Tax (GST) rule known as the “e-invoicing system” or “electronic invoicing system” applies to some taxpayers. According to the most recent e-invoice notification (17/2022) dated 1 August 2022, starting on October 1, 2022, enterprises with an e-invoice turnover limit of more than Rs. 10 crores in any previous financial year are required to create e-invoices for their B2B and B2G transactions.

Businesses that are covered under the fifth phase

The government mandated electronic invoicing as of October 1, 2022, for companies with a yearly turnover of more than Rs. 10 crores in any preceding financial year between 2017–18 to 2021–22.

The first phase previously applied to e-invoice turnover limits of more than Rs. 500 crores starting on October 1, 2020. Businesses with revenue above Rs. 100 crores started issuing e-invoices on or after January 1, 2021, as part of the second phase.

To ensure that business get enough time to be compliant with the new e-invoicing regulations, the GST council decided to implement e-invoicing in a staggered manner, as shown in the table below:

But the government has extended its application to.

1. Tax invoices,
2. Debit notes,
3. Credit notes, and
4. Invoice-cum-bill of supply

The system supports transactions like:

1. Taxable sales of goods or services made between businesses (B2B),
2. Sales of products or services made by businesses to the government (B2G),
3. Exports
4. Materials produced using the Reverse Charge Mechanism (RCM)

What is exempted from e-invoice?

The e-Invoicing scope does not cover the following types of documents, transactions, and enterprises:

1. Supplies that are exempt when the bill of supply is raised,
2. Imports,
3. Job works,
4. Delivery challans
5. Financial institutions, banks, and insurance companies
6. Presenting cinematographic films on multiplex screens
7. Non-banking financial businesses,
8. Goods and passenger transportation agencies,
9. Businesses operating in special economic zones (SEZs), and
10. Government departments.

Objective and impact of e-invoicing

Reducing the threshold turnover limit for e-invoicing aimed to reduce compliance while preventing fraud and GST evasion. Verified Input Tax Credit can be claimed by companies in the supply chain (ITC). As a result, it closes GST income gaps for the government. E-invoicing enables the capture of transactional information at the point of source, or the invoicing stage, and also strives to expand the GST digitisation net.

Adjusting the billing system or software, the GSTR-1 preparation, and the change in the business procedure affect the applicable businesses. While auto-population makes GSTR-1 filing simpler, reconciliations become more challenging. As these small businesses’ invoices are validated, easy access to official credit channels like invoice discounting is an essential advantage of the e-invoicing initiative.

However, to avoid losing tax credits or experiencing delays in claims, major corporations that source from these applicable organisations must ensure that their vendors follow the directive. Once streamlined, they can then claim genuine tax credits.

Changes in business operations and how to prepare

Businesses have until October 1, 2022, to get the new system ready, installed, and tested. In July 2022, the GST Network allowed such applicable enterprises to test the configuration for electronic invoicing in a sandbox setting.

The following outlines how firms must implement e-invoicing and how it will affect or alter their operational procedures:

Reporting of tax invoices

E-invoicing refers to reporting already generated invoices to the government for verification rather than generating invoices on the government portal.

Upgrading the ERP system, accounting system, or billing system

The e-invoice schema or format must be adhered to for accounting or billing software to function. Recognise when e-invoicing is applicable and separate such transactions and documents from the others for reporting to the Invoice Registration Portal (IRP), such as Busy Accounting Software. Sort the documents appropriately so e-way bills can be automatically generated from the information submitted for e-invoices. Make the printing setup capture the e-invoice’s IRN and QR code. These require alterations to the current billing, ERP, accounting, or software systems.

Ensuring the accuracy of invoice details

Ensure accurate and verifiable records of the suppliers’ and clients’ master data are maintained. Additional invoice details, including a valid GSTIN, bank account information, and payee information, should be included for accuracy. Any IRP rejection causes the team issues with invoice cancellation and regeneration, which disappoints consumers with the delay since e-invoice amendments are impossible.

Selecting a method for generating e-invoices

Choose the most appropriate method for generating a signed QR code from the IRP and an invoice reference number (IRN). There are numerous possibilities, ranging from SMS, offline, and batch processing to online and real-time processing.

Creating an account on the IRP or e-invoice portal

The applicable business must register on the e-invoice portal or notify an IRP to comply for the first time. 

GSTR-1 preparation and reconciliation

The procedure for preparing and filing GST returns has changed. Taxpayers must submit the non-taxable and B2C supplies later; the GSTR-1 will automatically populate with the information from the e-invoice. To verify the accuracy of the information reported and prevent notices, reconcile the books of accounts and the e-invoices that were automatically filled out in GSTR-1.

Avoiding delays in IRN generation

Businesses in this turnover range generate thousands of B2B invoices every day. Customers shouldn’t be kept waiting for so long before generating an e-invoice. 

Effects of not generating e-invoices

If businesses fail to generate e-invoices as of October 1, 2022, they must pay Rs. 10,000 for each invoice that is not generated. Failure to generate IRN is regarded as inaccurate invoicing and is subject to a Rs. 25,000 fine.

Small enterprises may have the following consequences in addition to the penal provisions:

1. GSTR-1 is not automatically filled in.
2. Buyers may delay payments and fail to timely claim eligible ITC. Eventually, it impacts the working capital of the applicable businesses.
3. Buyers reject invoices that are not consistent with e-invoicing and may have a negative impact on business contracts.