E-invoicing Under GST: Implementation and Threshold Impact
Since the government introduced Goods and Services Tax (GST), all companies above a certain annual revenue threshold must apply for and obtain a unique GSTIN number. It is well known that GST has simplified transactions and taxation for businesses, especially those operating across multiple states. One of the primary reasons for this simplification is the concept of e-invoicing.
In simple terms, e-invoicing refers to transmitting your invoice data to the GST portal to record the transaction instantly in the GST system. Previously, transactions were recorded when the business filed its tax returns. This system ensures that data is transmitted to the GST department when you invoice customers.
Over the years, this threshold for mandatory e-invoicing has been consistently brought down from initially covering only companies above Rs. 500 crores of annual turnover to Rs. 10 crores. The government is further planning to reduce it to a threshold of Rs. 5 crores.
If your business is likely to cross this threshold this financial year, let's dive into the details of e-invoicing and prepare your organisation to get into the e-invoicing regime.
What is e-Invoicing Under GST, and Who Needs to Generate It?
E-invoicing refers to the electronic invoicing system mandated by the GST law for certain notified GST-registered businesses, where B2B invoices and a few other documents must be authenticated electronically by GSTN.
It's a system where B2B invoices and other relevant documents are attested electronically by GSTN (Goods and Services Tax Network) for further use on the common GST portal. Initially implemented for specific categories of persons, mostly large enterprises, e-invoicing has now been expanded to cover mid-sized and small businesses as well.
With e-Invoicing, you don't need to generate invoices on the GST portal. Instead, you submit an already generated standard invoice on a common e-invoice portal. This automates multi-purpose reporting with a one-time input of invoice details.
Under the electronic invoicing system, the government issues an identification number (IRN) against every invoice by the Invoice Registration Portal (IRP) managed by the GSTN. All invoice information gets transferred from this portal to the GST portal and the e-way bill portal in real-time.
Therefore, it eliminates the need for manual data entry while filing GSTR-1 returns and generating part A of the e-way bills. You paste the IRN on the invoice and issue it to your customers.
Update: Government notification from 10 May 2023
The Central Board of Indirect Taxes and Customs (CBIC) has recently announced a significant update to the e-invoicing regulations through Notification No.10/2023 - Central tax. They reduced the threshold to INR 5 crores with effect from 1st August 2023.
Those who understand e-invoicing will know that if your business had an aggregate turnover of Rs. 5 crores or more in the previous year, you’re now supposed to issue an e-invoice.
Let’s understand these new rules and the implications of e-invoice applicability regulation. We will delve into the changes, examine the reasons behind the government's implementation of e-invoicing, and explore the benefits and challenges you may encounter. Additionally, we will provide a recommended Standard Operating Procedure (SOP) to help you navigate the compliance process effectively.
Overview of the Changes
This table provides an overview of the previous compliance thresholds and their respective effective dates. It helps visualise the progressive reduction in the compliance threshold leading to the upcoming change on 1 August 2023.
|E-invoice Applicability Date
|INR 500 Crore
|1st October 2020 onwards
|INR 100 Crore
|1st January 2021 onwards
|INR 50 Crore
|1st April 2021 onwards
|INR 20 Crore
|1st April 2022 onwards
|INR 10 Crore
|1st October 2022 onwards
|INR 5 Crore
|1st August 2023 onwards
The progressive reduction in the compliance threshold highlights the government's commitment to expanding the adoption of e-invoicing across businesses of varying sizes.
Consider a manufacturing company with an aggregate turnover of INR 6 crores in the preceding financial year. Under the previous threshold of INR 10 crores, this company would not need to generate e-invoices. However, with the new threshold of INR 5 crores coming into effect from 1st August 2023, this company will now fall within the ambit of e-invoicing compliance.
Who Must Generate the E-invoice and When?
The e-invoice applicability depends on your turnover criteria. The table below summarises the different phases and their respective turnover criteria.
Note: If your previous year's annual turnover was below the latest threshold limit (currently Rs. 10 Cr) but increased beyond this limit in the current year, e-Invoicing would apply from the beginning of the next financial year.
However, if your previous year's turnover exceeds any newly announced threshold, then you must comply with the e-invoicing from the date of notification itself. To simplify it further, on the date of a particular notification, you have to check your previous year's turnover and assess if it falls under the threshold limit.
For instance, ABC Ltd has a turnover of Rs. 12 Cr in FY 21-22. Notification 1/2022 was announced on 01.04.2022, mentioning a threshold of Rs. 20 Cr. Since ABC LTD's turnover was less than 20 Cr in the previous year, they are not obliged to follow e-invoicing in FY 22-23.
After a few months, notification 17/2022 was announced on 01.10.2022, mentioning a threshold of Rs. 10 Cr. Here, irrespective of current year turnover, ABC LTD will have to follow e-invoicing with effect from 01.10.2022 as their previous year's turnover is more than the threshold limit of Rs. 10 Crs.
Who Is Affected by the Change?
The reduced compliance threshold for e-invoicing will impact many businesses in India. To understand if it impacts you, it's important to understand the term "aggregate turnover."
Aggregate turnover refers to the total value of all taxable supplies (including exports) and exempt supplies a taxpayer makes. It includes both goods and services provided by the business.
For example, consider a SaaS company with 30%, global clients. If its total sales in the last financial year are above 5 scores (including zero-rated and exempt supplies), it will be subject to the e-invoicing requirement from 1 August 2023.
The reduction in the compliance threshold will result in a broader scope of businesses being impacted by e-invoicing. It will encompass many businesses with aggregate turnovers exceeding INR 5 crores, including many mid-sized enterprises and expanding small businesses. Understanding the e-invoice applicability is crucial for these businesses.
However, it's important to note that there are certain specified exemptions from the e-invoicing requirement. These exemptions provide relief to specific categories of businesses. It's recommended to consult with a tax professional or refer to the relevant government notifications for specific details on exemptions and e-invoice applicability.
Challenges and Potential Pitfalls of Adopting E-invoicing
- Initial implementation and training costs: Implementing e-invoicing may require businesses to invest in the initial setup, including software installation, customisation, and employee training.
- Hiring new personnel: Some businesses might need additional manpower or retrain existing resources. In many cases, consulting CAs also extend help for handling the operations of e-invoicing compliance. This could result in additional costs.
- Live invoicing: E-invoicing often requires invoices to be generated and reported in real-time or near real-time, with dates that match the actual supply of goods or services. Hence, businesses relying on part-time accountants who come in once a week will be unable to keep up.
- Integration challenges: Integrating GST e-invoicing systems with existing business processes, accounting software like Zoho Books and ClearTax, and other systems can be daunting for businesses new to the digital world. They will require technical expertise or third-party assistance to ensure smooth integration.
Assess your readiness and capacity to address these concerns. Adequate planning, preparation, and consultation with relevant experts can help mitigate these challenges and ensure a smoother transition.
Why Is the Government Implementing This?
Despite these challenges, the government has concrete reasons to implement a lower threshold for e-invoicing to contribute to a stronger administration.
- Real-time buyer-seller matching: GST e-invoicing enables real-time validation and matching of invoices between buyers and sellers, reducing the chances of errors, duplication, and tax evasion. It helps ensure that both parties accurately report the details mentioned in the invoice.
- Reduction in tax evasion: It enhances transparency in business transactions, making it easier for tax authorities to identify discrepancies and potential tax evasion cases. This minimises tax leakage and increases both compliance and revenue.
- Streamlined tax administration: An E-invoicing system for more businesses will simplify tax compliance and administration processes by automating invoice generation, reporting, and verification. This will reduce the burden of manual data entry, improve accuracy, and facilitate seamless integration with the Goods and Services Tax Network (GSTN).
- Elimination of mismatched records: The significant reduction between the supplier's and recipient's books facilitates smoother reconciliation of invoices, ensuring that the financial data reported by businesses aligns with their trading partners.
“With an intent to curb tax evasion and circulation of fake invoices to claim an input tax credit, the e-invoice system was introduced. With each passing year, the government is reducing the turnover limit for mandatory requirements. Though intent (of reducing the threshold to 5 crores) is good, this would hinder the ease of doing business for small registered dealers,” says Mumbai-based CA Harshil Shah.
Overall, the government's implementation of e-invoicing aims to enhance transparency, improve tax compliance, and streamline tax administration processes, resulting in a more efficient and effective tax system.
Recommended Standard Operating Procedure (SOP) For E-invoicing Compliance
Adopting a standardised approach is crucial for businesses to ensure smooth compliance with the new e-invoicing regulations. Here is a step-by-step guide for complying with the new e-invoicing regulations:
1. Assessing eligibility for e-invoicing
- Determine if your aggregate turnover in the preceding financial year exceeds INR 5 crores.
- Evaluate if your business falls within any specified exemptions.
2. Selecting appropriate e-invoicing software
- Research and evaluate different GST e-invoicing software options available in the market.
- Consider factors such as compatibility with your existing systems, features, user-friendliness, and affordability.
- Consult with software vendors, seek recommendations from trusted sources, and consider reviews and testimonials.
3. Implementation and integration of e-invoicing systems
- Set up the chosen e-invoicing software and configure it to align with your business processes.
- Ensure seamless integration with your accounting and ERP systems, if applicable.
- Test the system thoroughly to identify and address any technical issues or glitches before going live.
4. Training employees and stakeholders
- Conduct comprehensive training sessions to familiarise employees with the e-invoicing software and processes.
- Highlight the benefits and emphasise the importance of compliance.
- Provide hands-on training and support to ensure a smooth transition.
4. Monitoring and ensuring ongoing compliance
- Establish regular monitoring and audit mechanisms to ensure compliance with e-invoicing regulations.
- Conduct periodic internal reviews to identify and address any deviations or non-compliance.
- Stay updated with any changes or updates to the e-invoicing regulations and adjust your processes accordingly.
By following the recommended Standard Operating Procedure (SOP) for e-invoicing compliance, businesses can effectively ensure smooth adoption and navigate the e-invoice applicability. It's crucial to tailor the approach to your business needs and seek professional guidance when necessary.
Benefits of E-invoicing for Your Businesses
- Seamless accounting: E-invoicing streamlines the invoicing and accounting processes by automating invoice generation, validation, and transmission. Implementing an e-invoice system can streamline your invoicing process and bring numerous benefits to your business. It reduces manual data entry, minimises errors, and improves the overall accuracy of financial records.
- Faster filing of GST returns: Integration with the Goods and Services Tax Network (GSTN) simplifies and accelerates GST returns filing. The automation and accuracy provided by e-invoicing enable businesses to reconcile their invoices more efficiently and submit GST returns without delays.
- Enhanced cash flow management: E-invoicing enables faster invoice processing, delivery, and payment, leading to improved cash flow management. You can receive payments more promptly, reducing the time it takes to convert invoices into cash.
- Reduced errors and disputes: Minimising manual data entry and the risk of human errors/ discrepancies in invoices. The automated validation and matching processes help identify and rectify errors upfront, reducing the likelihood of invoice disputes with customers or suppliers. It leads to smoother and improved relationships with trading partners.
- Improved productivity and efficiency: You can automate repetitive tasks associated with manual invoice processing, such as data entry and document management. This frees up resources, allowing employees to focus on other operations.
By leveraging the advantages of e-invoicing, you can streamline your invoicing processes, enhance financial management, and unlock potential benefits that contribute to your overall success and competitiveness.
How Do I Plan if I Am Required or Will Soon Be Required to Follow E-invoicing?
You should move to an invoicing solution which is integrated with the GST E-invoicing platform, where you can just push finalised invoice data to the GST portal with the click of a button. There are many free and paid solutions available in the market. You can use the GST Department’s E-invoicing Solution, which is free to use, or paid platforms like Zoho and Clear.
Skydo Invoice Now Supports E-invoicing - Simplifies Tax Compliance
With Skydo Invoice, businesses can follow a straightforward integration process to include E-invoice functionality into their invoicing system. The steps to generate an E-invoice using Skydo Invoice are as follows.
- Generate an invoice using Skydo as usual: Businesses can continue using their regular invoice generation process with Skydo, ensuring that it aligns with their existing business processes.
- Add an E-invoice QR code in a single click: Once the invoice is created, Skydo Invoice allows users to effortlessly add the required E-invoice QR code with just a single click. This feature ensures compliance with GST e-invoicing regulations.
Moreover, one of the key advantages of using Skydo Invoice for E-invoicing is that it offers this functionality for free. In contrast, while platforms like Zoho Books and ClearTax offer similar e-invoicing capabilities, they come at a price. Zoho Books is priced at Rs 899 per month, and ClearTax at Rs 3000 per month, which can be a considerable investment.
Skydo’s free e-invoicing feature can significantly benefit businesses, especially those new to the digital world, as they can seamlessly adopt e-invoicing without incurring any additional costs for the feature.
By providing a seamless and smooth experience, Skydo Invoice aims to simplify the integration of E-invoicing with existing accounting software and other systems. This approach can help businesses avoid the daunting challenges associated with technical expertise and the need for third-party assistance, making the transition to e-invoicing more accessible and user-friendly.
“I was initially hesitant about implementing e-invoicing for my business, but its positive impact is undeniable. It has streamlined our invoicing processes but also put pressure on real-time accounting, which is tough. With time, we’ll see the actual results of this new GST system.”
Remember, early adoption and proactive compliance can provide a competitive advantage, streamline operations, and enhance financial management in the long run.
The implementation of e-invoicing regulations, as announced in Notification No.10/2023 - Central tax dated 10 May 2023, marks a significant milestone in the digital transformation of the invoicing process. Reducing the compliance threshold to INR 5 crores from 1st August 2023 expands the scope of businesses required to adopt e-invoicing. This change aims to enhance transparency, improve tax compliance, and streamline business administration processes.
E-invoicing brings numerous benefits to businesses, including seamless accounting, faster filing of GST returns, enhanced cash flow management, and reduced errors and disputes. While challenges are associated with adopting e-invoicing, such as initial implementation costs and integration complexities, proper planning and consultation with experts can help mitigate these challenges.
To comply with the new GST e-invoicing regulations, businesses should assess their eligibility, select appropriate e-invoicing software or service providers, integrate e-invoicing systems into their existing processes, train employees and stakeholders, and ensure ongoing compliance. Real-life case studies of businesses that have successfully adopted e-invoicing can serve as valuable examples and guidance for others.
It is important for businesses to stay updated with the latest e-invoicing regulations, seek professional advice when needed, and embrace digital transformation to unlock the potential benefits of e-invoicing. Businesses can streamline invoicing processes, improve financial management, and contribute to a more efficient and effective tax system.
Q1. Is this applicable to B2C businesses?
Ans: No, e-invoicing regulations only apply to B2B (business-to-business) transactions. This means businesses selling goods or services to other businesses must comply with the e-invoicing requirements. B2C (business-to-consumer) businesses, which directly sell products or services to individual consumers, are not mandated to follow the GST e-invoicing regulations.
Q2. How is "aggregate turnover" calculated?
Ans: Aggregate turnover refers to the total value of a business’s taxable supplies (goods and services) within a financial year. It includes the value of supplies made within the state, supplies made outside the state, exports, and exempt supplies. Aggregate turnover does not include the value of inward supplies on which the business is liable to pay tax on a reverse charge basis.
Q3. Which businesses are exempt from the e-invoicing requirement?
Ans: In our conversation with CA Ravi Mamodiya, he mentioned, “Businesses that engage only in exempted goods and services like grains, flour and others are exempt from the e-invoicing requirement, irrespective of their turnover. However, even if they sell a single product that attracts GST and their aggregate turnover (total of exempt as well as taxable products) is over 5 crores, they are mandated to comply with the e-invoicing system.”
Q4. What are the penalties for non-compliance?
Ans: The penalties for not generating an e-invoice is 100% of the tax due or Rs.10,000, whichever is higher, for every invoice.
Q5. What are other consequences of non-compliance with e-invoicing?
Ans: Here are the other consequences of non-compliance with e-invoicing.
- Goods in transit can be detained
- Holding up invoice payments/ITC claims may be denied to GST-registered buyers
- Affects e-way bill generation and causes delays
Q6. How can my business transition to e-invoicing?
Ans: You need to follow the following steps.
- Select suitable e-invoicing software or service providers to generate and manage your e-invoices.
- Implement the chosen solution, train your employees, and establish a monitoring system to ensure ongoing compliance.
Q7. What tools can I use for generating GST e-invoices?
Ans: Several tools are available for generating e-invoices, including free and paid options. Some commonly used tools for generating e-invoices are as follows.
- Online accounting software: Many platforms like Zoho Books offer built-in e-invoicing features that allow you to generate and send e-invoices directly from the software.
- E-invoicing service providers: Specialised service providers like ClearTax offer e-invoicing solutions, allowing you to create and manage e-invoices through their platforms.
- Government portal: The GST portal also provides an e-invoicing tool to generate and submit e-invoices according to regulatory requirements.
Disclaimer: The information provided in this blog is for educational purposes only and should not be considered professional or legal advice. It is recommended to consult with relevant experts and authorities for specific guidance tailored to your business requirements and compliance obligations.