e-Invoicing in INDIA

a big step into a digital economy to be completed in 2020

India and the whole APAC region are recognized as a developing market in e-invoicing compared to EMEA, NAM (average) and LATAM (leaders). However, the Indian e-invoicing regulation definitely qualifies as a leading development.

Taking its own steps to develop e-invoicing, India is especially dynamic in choosing the TAX CLEARANCE model. At this point, this is the most advanced solution for e-invoicing in the world (already in place in LATAM countries – Mexico, Chile, Peru). This is no surprise, as we are talking about a country with wide-spread tax fraud and huge potential savings for the government. At the same time, it also suffers from an overloaded and uneven technological infrastructure. This means that the planned mandatory real-time verification of invoices will not only hit fake GST (Goods and Services Tax) invoice operations and other GST fraudsters but also regular taxpayers, especially MSMEs which cannot afford the fully-fledged software solution.

Although e-invoicing is the major change in 2020, a number of e-tax developments are also scheduled for 2020. In addition to e-Invoicing, there is also a pilot pending for automated tax clearance on the importation of goods. At the same time, due to large-scale upload of GST returns and submission portal overload, a new development allows for staggered (staged) filing.

e-Invoicing Obligation – Basic Information

The legal basis for introducing the e-invoicing requirement was the decision taken by the GST Council at its 37th GST Council Meeting. It is being rolled out in B2B and B2G transactions only. It shall not apply then to B2C (at least not to the same extent).

Although the requirement is mainly putting effort on the suppliers, the buyers would also be interested. The invoices they receive are in line with regulations, as the input VAT deduction will only apply provided that invoice is a valid e-invoice using IRN (Invoice Reference Number).

The e-invoicing will serve all types of GST documents, including invoices, credit notes and debit notes. It may also cover other supporting documentation that may be required by law. The e-invoice schema already foresees such a possibility.

The obligation to issue e-invoices is directed to taxpayers registered under GST exceeding a certain turnover. You will find more details on the implementation schedule below.

e-Invoice – Format and Content

The invoice shall be uploaded by taxpayers using JSON format. JSON is generally similar to XML, which nowadays is commonly used across jurisdictions for e-invoicing and e-tax requirements but is less flexible.

Within this format, the taxpayer shall include all the required fields (34 fields) out of a total of 133 fields that have been mapped in the invoice structure. The mandatory fields include the typical invoice information such as supplier’s and buyer’s data, amounts and dates. Interestingly, within this list are also fields allowing users to identify types of transactions in terms of GST (export, import, bonded warehouse, reverse charge, own use, etc.).

This information along with numerous optional fields allows for simplification of the invoicing process for all businesses.

e-Reporting via e-invoicing

The e-invoicing system was introduced with two main objectives: to cut down on tax frauds and simplify the administrative burden related to the invoicing process. The solution is comprehensive and addresses a number of business areas (not only tax-related).

GST return (GSTR) filing currently involves a great deal of manual work and it is far from being error-free. E-invoicing is designed to ease the process and improve its quality. Once IRN is issued, it will generate information in the sale and purchase registers (Anx-1 and Anx-2) automatically. Data provided in the e-invoices and uploaded into the GSTN portal (IRP) will also be used to pre-populate the GST return (RET-1).

The e-invoicing system will also deliver a set of information to be used for the purposes of the Electronic Way Bill (e-WayBill – goods movement tracking system). Once the e-invoice is uploaded into the portal, it will enable population of information on the e-Way Bill based on information provided in the e-Invoice. The e-invoicing schema already includes the information related to transportation (Transporter ID, Vehicle number) to enable full automation of e-Way Bill, although this information is not mandatory at this stage.

Integration and Compliance Challenges

Although the development is far-reaching, there are several challenges that businesses will have to face. They will definitely require additional ERP development or external provider support in order to enable smooth e-invoicing under the new regime.

There are, however. a few facts that are worth pointing out as the system entails several challenges. Hopefully, some of these may become invalid in the next months or in the upgraded version of the e-invoicing system.

First of all, the modifications of e-invoices in IRP will not be possible through automation. Therefore, full cancellation will be required in order to modify the document in case of even minor mistakes or omissions. There will only be a 24-hour (counting from upload) window for verification and modification of e-invoices in IRP.

Another thing is that archiving of e-invoices will not be possible in the portal. The invoice will only be available in the IRP portal for 24 hours. However, it will be archived in the GST system during the financial year. Therefore, the taxpayers’ software must be able to store e-invoices during the statute of limitations period.

What may pose a significant issue (especially for large businesses producing large numbers of documents on a daily basis) is that bulk upload will not be available.?Invoices will have to be uploaded one by one. However, this possibility has been provided in the API-based mode.

Finally, there is also a challenge in terms of compliance and the available infrastructure. There is growing anxiety regarding the ability of the IRP to serve e-invoicing, keeping in mind that the GSTN portal has been facing overload glitches, resulting in a modification of the law allowing the GST submission in stages.

e-Invoicing Implementation Schedule

e-Invoicing will be implemented in stages within the first half of 2020, starting with a 3-month trial period and launching mandatory e-invoicing as of April 2020.?

e-Invoicing – Summary

There is no doubt that the development will require a technical upgrade of the ERP or the accounting systems in order to meet the requirement. Regardless of the system currently in place, each taxpayer will have to ensure that these two developments are implemented:

-?????ability to issue an invoice in a standardized format (JSON) according to the published schema,

-?????ability to report the e-invoice to the central system (GSTN) directly from the system or via external providers.

The JSON of the e-invoice may be uploaded directly onto the IRP (via ERP integration), through ASP/GSP, or through a third-party provided application.

For further details, do not hesitate to comment or contact me.

+44 7833 537388 | [email protected]

Ridvan Yigit