Issues and Challenges of E-Invoicing Under GST

Introduction

In GST the E-invoicing system can be termed a digital invoice. It is produced for goods and services provided by an enterprise or business at the GST portal as guided by the Government of India.  The said concept of E-Invoicing was adopted to reduce tax evasion under GST. 

The GST officers thought that businesses must follow a system where they can easily access the details of GST. Considering the same, the government made it mandatory for every business registered under GST must generate an e-invoice for sales made by them on the GST portal. However, the said system of e-invoices does not apply to businesses that have not exceeded the threshold limit of the annual revenue as prescribed by the government.

An official statement given by the GST officials provides that the businesses that are falling the under prescribed threshold limit will be given a unique reference number each time whenever an e-invoice is generated. Simultaneously, the businesses have to match the provided unique reference number with the required invoices written sales returns, and taxes paid during the verification process.

The implementation of e-invoicing in GST was suggested at the 39th GST Council meeting and the said scheme was applied with specific QR codes effective from 1st October 2020 during the coronavirus pandemic.

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Ultimately, the government launched the trial version of GST e-invoicing. This is one of the famous and convenient mechanisms of invoicing as suggested by the GST Council. The system of GST e-invoicing will provide the categories where the taxpayer can access and fill the invoice as per the turnover and conditions. The GST provisions provide that a taxpayer whose turnover is exceeding 500 Crore or more has to fill the GST e-invoice through the GST portal.

Advantages of E-Invoicing for Businesses and Government:

The advantages of E-Invoicing under GST are mentioned below;

•  In the case of B2B businesses, invoices are made to eliminate the need for bill reports in more than one format. This helps to reduce the probability of omissions and errors.
•  An accurate and complete record can be maintained about the total sales and purchases of goods or services of an enterprise and considering the same the return for GST can be filled under the GST portal automatically.
• E-Way Bills can be created with the help of details mentioned in the e-invoice.
• The chances of settling the data between the books of accounts and GST returns filed.
• The creation of an actual time invoice from the starting point of the entry on the part of the supplier can lead to the fastening of the process of Input Tax Credit on the part of the recipient.  Ultimately, this will lead to maintaining accurate and faster availability of credit.
• The information provided on the GST portal is auto-loaded which helps to file the compliance documents easily for the taxpayer.
• There will be a reduction in tax evasion and it will show only real-time entries.

General Benefits of E-invoicing:

The general benefits of E-invoicing are mentioned below;

• E-invoicing helps to authenticate the transactions electronically from business to business.
• It also delivers e-invoices as proof and creates transparency of monetary transactions made by businesses.
• In recent times, a supplier and purchaser of goods or services can make a transaction without providing any proof for such exchange to the Government. With GST, it is mandatory to upload each transaction in the GST portal which will be validated with a unique number known as Invoice Reference Number (IRN).  Once IRN is issued the tax invoice will be shared with both supplier and purchaser of goods and services.
•  In India, the rate of tax evasion is increasing day by day. GST and its E-invoicing are a boon. The invoice tracking system with real-time measures is best for both vendors and the government. It reduces fake and duplicate GST invoices and eliminates fraud.
• The recent upgrade system of GST returns curbs human errors and also saves ample time and effort. Ultimately, it eliminates all sorts of reconciliation issues.

Challenges to Address for E-Invoicing:

It is undoubtedly a good decision to adopt a new system for indirect tax, however, some challenges need to be acknowledged too.  In a country like India, GST is just a starting process but to some extent, the country has grown significantly due to large internet coverage all across the country. Still, the country is facing a lack of infrastructure.

This is can be better analyzed with the help of an example. For example, a small business unit that has a factory in a rural area that does have internet connectivity or has poor network issues seems to be a great hassle when we consider the e-invoicing aspects.

Large-scale businesses that have already adopted automatic e-waybills for tax invoice creation have to make amendments in the process of invoice generation.  The GST guidelines state that businesses must adopt the system with the IPR portal and not the e-waybill portal for IRN generation. Apart from those changes must be made to the software and databases.

The taxpayers who have adopted an automatic e-waybill scheme have to contact OEM for software configuration.

Potential stakeholders must be provided training for the new changes made in e-invoicing and considering the same accuracy and proper will be allocated to the IT department.  If there is an effect on the working capital then a proper arrangement has to be made.

The accounting software and manual account bills required to be revamped which is a complex and time-consuming task. The sector of MSMEs suffers from a shortage of manpower. Thus, it is not easy for MSMEs to hire a qualified professional with good knowledge of e-invoicing.

The investment in manpower may also be costly. However, the help of trusted software including ERPs for goodwill and distribution management owned by MSMEs can be helpful to eliminate the issue.

Exempted Sectors under the e-Invoicing System:

The concept of e-invoicing under GST was introduced last year and it was effective from 1 January 2020.  Businesses whose annual turnover is Rs. 500 crores or more have to adopt the e-invoicing process. The GST Council decided to implement the e-invoicing and QR codes effective from 1st October 2020. However, some sectors are exempted to adopt the e-invoicing process that includes banking, insurance, Financial Corporations, Transport services in respect of passengers, financial institutions, GTA, Non-Banking, etc.

Common Challenges and Issues under GST:

• Sorting of B2B and B2C Invoice:

E-invoice is only applicable for B2B.  Hence, B2B businesses need to adopt both e-waybill and e-invoices as a source of revenue generation mechanism. In some cases, e-waybills are required as well. Hence, there is a need of sorting invoices for automation of transactions without investing a lot of effort and time.

• Cancellation and Amendment of e-invoice:

Although there is a small error or change in the e-invoice, it cannot be canceled partially. An e-invoice can be canceled in 24 hours on the IRP system according to GST provisions. After 24 hours the cancellation cannot be made. It is also to be noted that the cancellation process must be done manually. Considering the same, the vendor can revise the invoice numbers apart from fixing the errors and also can raise another e-invoice request.

• An Alternate Arrangement for Data Storage:

The data will remain for only 24 hours in the IRP system. Hence, there must be an alternate arrangement to archive the records.

• No Bulk Generation of E-Invoice:

There is no provision for bulk generation of e-invoices on the GST portal. According to GST guidelines, a single invoice will be generated at a particular time. Accordingly, the ERP of businesses is required to be customized.

• Implementation Issues:

The uploading capacity of e-invoicing is based on the data of GSTR-1 which has been submitted over the past couple of years. Hence, if there is a large number of users in GSTN, then the government must be prepared to adopt the latest technology which can affect negatively compliance matters.

• Non-Applicability B2C Transactions:

It is very common to know these days about fraud happening in B2C invoices as the input tax credit scheme is not there in B2C invoices. Hence, e-invoicing also should be implemented in B2C businesses to avoid fraud as well as tax evasion.

• Unanswered Questions:

Certain questions are unanswered including the revocation of auto-populated data in e-waybills as the e-invoice can get canceled due to wrong or incorrect details. However, the GSTN section has been proactively maintained in the GST portal with FAQs heading where we can expect the answers to these questions soon hopefully.

Read, more; How to Identify Fake GST Invoice?

The changes in the workflow can produce other types of documents:

Generally, e-invoicing is meant for B2B invoices. Hence, it is essential to differentiate the workflow which can be mentioned for delivery challans, bill of supply, job work, and some other similar transactions that are made. It requires ample time and effort to create and different workflow for different transactions.

Conclusion:

E-invoicing is indeed a push for improvement in the digital economy of the country. The rise in the collection of taxes and elimination the tax evasion for the government is ensured. Accordingly, the government can consider hiking the GST rates further. E-Invoices can also be saved as a document where both debit and credit notes are there.

The implementation of e-invoicing can probably have a positive effect on businesses that can lead to reducing the eradication of data entry omission and errors. It will help to make greater transparency in every transaction made by the supplier and purchaser.