GST Council makes compulsory E-invoicing for businesses

Prabhat Nigam

05 Mar, 2022

Expanding the scope of requirement for E-invoicing or real time reporting of business-to-business (B2B) sales, the finance ministry has made compulsory E-invoicing for all the entities with more than rupees 20 crores in annual sales. It is said that this official order has been passed by the Union Ministry of Finance on the recommendations of the GST Council.  

What is E-invoicing?

Electronic invoicing or popularly called as E-invoicing is a system wherein the Business-to-Business invoices are authenticated thorough electronic mode by GSTN for further use on the GST portal. Under E-invoicing system, the Invoice Registration Portal (IRP) managed by GSTN issues an identification number will be issued against every invoice generated.

The invoice information uploaded on this portal shall be transferred to both the GST portal and E-Way bill portal on a real time basis. This will do away the repetition of manual data entry in filing returns under GSTR-1 and generating Part-A of the E-Way bills as the information is shared directly from IRP to the GST portal^[1].

Which entities need to comply with compulsory E-invoicing

The Central Board of Indirect Taxes (CBIC) has made compulsory E-invoicing under GST for those registered persons whose aggregate turnover is above Rupess 20 crore in any of the previous years from 2017-18 to 2021-22. Earlier, the threshold limit was limited to Rupees 50 crores. The notification will come into effect from 1^st April, 2022.

The order states that the businesses need to prepare the invoices and prescribed documents in the manner prescribed under Rule 48(4) of the CGST Rules, 2017.

Existing scenario before the order of compulsory E-invoicing

In the current scheme of things, compulsory E-invoicing is meant for only those entities having sale equal to or above than Rupees 50 crores. This order passed by Union Ministry of Finance shall be applicable from 1^st April, 2022 onwards. As a consequence to this order coming into force, it is expected that there will be a significant increase in the reporting requirements which has the potential to expose the acts of tax evasion on part of small businesses. This point has always been a weak point for the small businesses when it comes to their tax compliance.

How does compulsory E-invoicing increase tax compliance?

The B2B sales by the entities having sales more than 20 crore will be captured at the E-invoicing portal run by the National Informatics Centre. Such digital reporting will make it difficult for these businesses to evade or under report their final sales. This measure has been especially adopted to deal with the widely prevalent practice of issuing informal sales invoices or popularly called ‘kachha bill’ by these businesses. Such practice is prevalent in those sectors where margins are generally high.

Implications of compulsory E-invoicing

Introduces self-policing features

It is believed that the said order has been taken on the recommendations made by the GST Council. The said order has been taken in pursuance of the policy and vision of the government to deploy technology enabled self-policing features to improve tax compliance in the new indirect taxation system of India.

Claim ITC and avoid penalties

Many entities will be required to raise E-invoices from 1^st April, 2022 onwards and if the invoice uploaded on the GST portal is not found to be valid, then the tax payer may the bear the consequences such as inability to claim the input tax credit and consequently penalties can be imposes on such tax payer.

Simplify compliance mechanism and plug leakages

The experts believe that this move taken by the government of compulsory E-invoicing for all those assessees whose turnover is more than Rupees 20 crores, has taken automation of tax compliance to a larger set of taxpayers which will eventually lead to simplifying the compliance mechanism and also plug the revenue leakages done on account of input tax credit frauds.

Pave way for embracing technology

The industry experts are also of the view that the order of compulsory E-invoicing will pave the way for the small businesses to adapt and embrace technology in issuance of invoices.   

Another Step towards formalisation of the economy

This order passed by the government is an indication of the government’s intent to transition India into a formalised economy through GST.

Reactions from the industry

On one hand, the industry experts believe that the lowering of the threshold limit will make it help the government in plugging the revenue leakages while on the other hand the businesses have loathed this decision because millions of businesses will be running against the time to incorporate the changes within their reporting mechanism as these changes will come into effect from 1^st April, 2022 onwards.

The experts comment that the year of 2022 has been the year of making significant changes for the GST. The government introduced an entirely new tax regime for the food delivery apps and now this order has made it extremely difficult for those millions of small and medium businesses who have not embraced technology yet.

This will certainly be diving into an unknown territory for these businesses.

Conclusion

Though there is expected to be resentment from small and medium businesses in adapting to the new changes, but this order will a long way in the government’s vision of formalization of economy, stopping tax evasion etc. This order will also prevent manual repetition and help in automatic filing of GSTR-1 and E-Way Bill. Therefore, it is important that the businesses should adapt their systems before 1^st April, 2022 according to the Notification otherwise the taxpayer will not be claim ITC and incur penalties.

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