From October 1, E-Invoice Mandatory for Businesses in India Exceeding Turnover of INR 100 Million
Generating GST e-invoice will soon become mandatory for B2B transactions for entities in India whose turnover is more than INR 100 million (INR 10 crore). Currently, this applies to businesses reporting an aggregate turnover of INR 200 million (INR 20 crore) and above. The move follows recommendations made by the GST Council in 2019 to implement electronic invoicing in a phased manner in the country.
To prevent confusion regarding GST compliances and reporting, foreign invested entities doing business in India are welcome to reach out to our tax advisors at email@example.com.
Changes to the scope and applicability of GST e-invoicing in India
On August 1, the Ministry of Finance issued notification No. 17/2022–Central Tax, which will make e-invoicing mandatory for businesses in India showing an aggregate turnover of more than INR 100 million (10 crore) from October 1, 2022.
During its 37th meeting, held in 2019, the GST Council had recommended that India introduce electronic invoicing (e-invoicing) in a phased manner – to ensure the stability of the IT system facilitating this.
Consequently, e-invoicing was gradually made compulsory, starting for businesses reporting much higher turnover thresholds.
For quick reference, the mandatory e-invoice requirement has been rolled out in the following phases:
- Phase one, implemented from October 1, 2020, for entities reporting turnover of INR 5 billion (INR 500 crore) and above.
- Phase two, for entities reporting a turnover of INR 1 billion (INR 100 crore) and above, implemented from January 1, 2021.
- Phase three, where entities reporting INR 500 million (INR 50 crore) and above must generate e-invoicing starting from April 1, 2021.
- Phase four, where the threshold for mandatory e-invoicing was reduced to turnover of INR 200 million (INR 20 crore) and above, effective April 1, 2022.
So far, the e-invoice system has witnessed the increase of 12.5 million taxpayers in October 2020 to 13.8 million as of July 2022.
Now it is being widely reported that the government plans to make GST e-invoicing mandatory for companies showing a turnover of INR 50 million (INR 5 crore) and above in the ongoing fiscal year itself, likely from January 1, 2023.
This would dramatically widen the net of companies that need to comply with the e-invoice requirement, particularly impacting micro, small, and medium enterprises (MSMEs) who form the backbone of the economy.
The primary goal of e-invoicing is to mitigate the mismatch of data on physical invoices and actual transactions due to fake invoicing or human errors.
How does the e-invoicing system work?
The GST e-invoice system tracks business-to-business (B2B) transactions on the Invoice Registration Portal (IRP), which facilitates assessment and computation of input tax credit (ITC). In terms of how it works – once the supplier uploads their specific particulars on the IRP, a unique identification number or Invoice Reference Number (IRN) and Quick Reference (QR) code gets generated.
The e-invoice thus provides a standardized format that is machine readable and can be electronically authenticated on the Goods and Services Tax Network (GSTN) and be further used on the common GST portal.
E-invoicing connected to eligibility for input tax credit claims
For businesses where the e-invoice is mandatory, they cannot avail ITC on their B2B transactions if they have not met the necessary compliance. Such non-compliance will also attract applicable penalties.
As of July, the GSTN has entered into agreement with four entities to strengthen IRP infrastructure and balance the load on the GST system. The companies are Cygnet InfoPath, IRIS Business Services, Defmacro Software (Cleartax), and Ernst & Young LLP as reported in the Business Standard.
According to official records, out of 219,000 eligible GST identification numbers (GSTINs) reporting a turnover between INR 200 million and INR 500 million, only 153,000 are generating invoices while 48,217 out of 86,963 GSTINs with turnover between INR 500 million and INR 1 billion are generating invoices.
Further, it is reported that the government detected fake ITC claims worth more than INR 500 billion in the last 18 months alone.
Tax authorities are thus making constant improvements to the GST system, including lowering thresholds for e-invoicing in a phased manner, to plug revenue leakages and ensure wider compliance.
Support for small businesses through empaneled software
Since small businesses use multiple types of accounting and billing software (over 300 such products exist in the market) to store their invoices in electronic format, there is need for a standard version that will be understood by the GSTN as well as facilitate inter-operability across the GST ecosystem.
Therefore, the GSTN is empaneling multiple accounting and billing software products to provide basic systems at free cost to small business – who report turnover less than INR 15 million (INR 1.5 crore). The empaneled billing/accounting software include both cloud-based (online) and installed software (offline) products.
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to firstname.lastname@example.org for more support on doing business in in India.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.