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GST Center

E-Invoicing in GST: Meaning and Procedure

A lot of questions have been raised about E – Invoicing in GST and its implementation since the time GSTN presented the draft E- Invoice standard. Introduction of E-Invoicing standard is part of government’s efforts to eliminate fake invoices and reduce tax evasion.

Since there was no standard for e-invoicing in India, the GSTN in consultation with trade bodies and ICAI finalized the e-invoicing standard. The very purpose behind introducing such a standard is to ensure complete interoperability of e-invoices across the entire GST ecosystem.

This means that if such a standard is implemented, it will result in uniformity with regards to interpretation of invoices by different accounting softwares. That is, such a standard will help in reading invoices no matter through whatever software they are generated.

Besides this, such a standardized approach would further help in reporting details to the GST portal while filing returns. Also, E – Invoicing would ensure that the invoices generated by different stakeholders in the entire GST ecosystem can be read by machines and hence result in less data entry errors.

Therefore, to achieve such objectives, GST Council in its 37th meeting published the e-invoice schema on the GST portal. So, to help you understand the concept behind e – invoicing in GST, let’s take a look at what comes under e – invoicing and how will it help the taxpayers?

What is E-Invoicing?

The concept of e – invoicing in GST means standardizing the format in which electronic data of an invoice will be shared with the other stakeholders in the GST ecosystem.

Such a standardized approach is adopted to ensure that there is inter-operatability of invoice data.

Current System of Raising Invoices

Currently, the invoices are generated by suppliers with the help of their accounting systems, ERPs, accounting or billing softwares or excel based tools. Since various suppliers use different accounting systems/ERPs to generate invoices, invoices generated by one software cannot be understood by another software. This is because each software has its own format to store information electronically.

Additionally, the GST system also fails to understand the invoice details reported to it in varied formats through different accounting/billing softwares.

Thus, the need to standardize the format of invoices details became all the more important.

What Would Happen Under E – Invoicing?

It should be noted that the concept of e – invoice would not involve the generation of invoices through a centralized tax portal. Thus, suppliers under E – invoicing would continue to generate invoices from their own accounting systems or ERPs in the same way as they are doing currently.

The e-invoicing system will only determine the invoice schema and standard. This is to make sure that the invoices generated by multiple billing softwares can be read by machines and result in minimal data entry errors.

Therefore, once the invoices are generated by the suppliers, they will report these invoices to the Invoice Registration Portal (IRP) of the GST. IRP will in return issue an Invoice Reference Number (IRN), digitally sign the invoice and issue a QR code containing details of the e-invoice.

The IRP will also send the authenticated invoice to the GST system as well as E – Way Bill system, where details will be auto – populated in ANX – 1, ANX 2 for GST return and part A of the e-way bill respectively. The buyer will also receive the authenticated invoice from the IRP. Thus, the buyer can use the QR code to verify the invoice and view ITC in his ANX – 2.

Benefits of Implementing E-Invoicing

E – Invoicing would benefit all the stakeholders under the GST system including buyers, suppliers and government in a number of ways:

  • Inter – operatability as invoice generated by one billing software can be read by another and would help in reducing data entry errors
  • ANX – 1ANX-2 for filing GST RET – 1 would be automatically populated, thus making the supplier all set for filing GST return. Similarly, Part A of the E-Way Bill too would be automatically filled, helping to generate E – Way bill with the help of e-invoice data
  • Less verification in respect of input tax credit issues as the same data is available both with the tax authorities and buyer
  • Invoices will be properly tracked allowing for matching of input tax with the output tax at the system level itself. This will help in reducing tax evasion.
  • Fake invoices would no longer be issued as invoices have to be reported to IRP for authentication

How Will E-Invoicing Work?

The functioning of E – Invoicing system would involve two sections:

I. Interaction Between The Supplier and Invoice Registration Portal (IRP)

a. Invoice Generation and its Reporting to IRP by the Supplier

As mentioned earlier, suppliers would continue to generate invoices from their own billing softwares/ERPs or excel based tools under e-invoicing system. However, this invoice must be in accordance with standards rolled out by GSTN under e-invoicing.

Further, it must be noted that the billing software of suppliers must be capable of generating invoices in JSON file format. This is because invoices in JSON format only can be uploaded to the IRP.

Now, there are small business owners, having an annual turnover of less than Rs. 1.5 crores, using tools that do not generate invoices in JSON. In such cases, they can use the off-line template provided by GSTN for furnishing invoice details and then report the same to IRP.

b. Generation of Unique Invoice Reference Number (IRN)

IRN is typically generated by the IRP, after the supplier uploads the invoice to IRP. However, the suppliers/taxpayers too can generate IRN and submit the same to the IRP along with the invoice.

This step is not mandatory and is totally a matter of choice on the part of the supplier. Technically, IRN is a hash of three parameters generated using a standard and a hash generation algorithm. There are basically three parameters that are used in generating IRN. These include:

  • GSTIN of the supplier
  • Invoice Number of Supplier
  • Financial Year

The GSTN has specified the IRN generation algorithm to be used in its e-invoice standard. Further, it has also asked the accounting or billing software providers to incorporate this algorithm in their software.

c. Uploading E-Invoice in JSON to IRP

The supplier then uploads the e-invoice in JSON file format to IRP along with IRN if so generated. The supplier can choose to upload the invoice directly on the portal, may seek the help of a GST Suvidha Provider or use a third party app for the same.

d. Generation of IRN, QR Code and E-Signing of Invoice by the IRP

After submitting the e-invoice to the IRP, the IRP will generate IRN.