The author is Archit Gupta, Founder and CEO – Clear (formerly ClearTax)
A straight answer to this question would be a yes, but are Indian businesses reaping the benefits yet? Electronic invoicing or e-invoicing is the Indian government’s initiative to transform the ways businesses interact with each other in the long run. It is completing one year of implementation in India on 1st October 2021.
Under e-invoicing, the GST system verifies and authenticates reported invoices by assigning unique Invoice Reference Numbers (IRN) and Quick Response (QR) codes. Sellers issue digitally signed e-invoices to their buyers and can also find these details automatically filled in their GSTR-1 return.
Currently, all those businesses registered under the Goods and Services Tax (GST) law with a total annual turnover exceeding Rs.50 crore must generate and use e-invoices for their Business-to-Business (B2B) sales. Soon, it shall also cover mid-sized businesses with more than Rs.5 crore as annual turnover. But its true potential can only be realised when all businesses, including small-sized businesses and MSMEs, join the e-invoicing ecosystem at a faster pace.
e-Invoicing was introduced with the idea of plugging gaps in data reconciliation under GST. It provided for the curtailment of fraud of tax evasion, a problem India long suffered from. It promised taxpayers the faster availability of genuine input tax credit and paved the way for the automation of tax return filings. Further, the interoperability of data between various tax and business compliance ecosystems was the icing on the cake.
In the one year since e-invoicing was introduced in India, the benefits have become apparent for businesses and the government alike. It has reduced taxpayers’ efforts in filling up B2B sales details in the GSTR-1. Only accurate invoices are processed on the GST system, which reduces the scope for tax evasion and errors in GST returns. The generation of e-way bills has become faster and easier as Part-I of the e-way bill can be auto-populated on a real-time basis. Additionally, the QR code on every e-invoice will help the tax officials conveniently verify details offline during the transit of goods.
e-Invoicing further helps streamline invoice management and increases efficiencies in accounts receivables management. It also reduces audit risks. All these benefits of the e-invoicing system prove why e-invoicing can be a potential game-changer for Indian businesses. e-Invoicing necessitates enterprises of all sizes to embrace digitisation. They must use ERP and tech-based solutions for billing to pass on data to the GST system easily.
The high dependency on pen and paper for business invoicing, especially MSMEs, haunts the tax department. Several cases have been reported for fake invoicing and fake input tax credit claims where companies illegitimately avoid tax liabilities in cash. Further, using a conventional invoicing system poses risks of transcription errors and duplication, potentially leading to erroneous accounting and tax returns.
Not only does e-invoicing act as a precautionary measure for such mishappenings, but it also allows businesses to interact with each other through their e-invoicing systems. Business owners must consider investing in technology and build on their digital literacy. The government should also extend colossal support in making this possible for every business through dedicated schemes.
Once the MSMEs board the e-invoicing system, they can explore their business options in the mainstream market within no time and conveniently operate from remote areas. Invoice discounting and digital lending will take a giant leap in India if e-invoicing extends to MSMEs.
MSMEs can confidently interact with larger businesses as the process becomes transparent. The larger enterprises must also encourage their customers to adopt digital invoicing practices to make e-invoicing successful.
Several countries have already set the pace of e-invoicing adoption by being early adopters. Few countries such as Saudi Arabia have announced the timelines for implementation by all its taxpayers from December 2021. India must also expedite its adoption of the e-invoicing system to reach new highs in the global race of ease in doing business.