e-Invoicing or electronic invoicing system was introduced under the Goods and Services Tax (GST) law. It applies to certain taxpayers registered under the GST law in phases.
A government official had previously informed that the government plans to implement the next phase, the sixth phase, from 1st January 2023, yet to be notified. However, on 26th December 2022, the CBIC clarified that it would not begin from 1st January 2023.
The sixth phase was planned to be made applicable to businesses with an e invoicing turnover limit of more than Rs.5 crore up to Rs.10 crore in any preceding financial years from 2017-18 up to 2021-22.
Businesses covered in the sixth phase of e-invoicing
The government had plans to make e-invoicing mandatory for businesses with a cumulative yearly turnover of over Rs.5 crore in any previous financial year from 2017-18 to 2021-22 from 1st January 2023. But, as per the CBIC clarification on 26th December 2022, the system is not going live from the slated date.
Earlier, phase I applied to the e invoice turnover limit of more than Rs.500 crore from 1st October 2020. During phase II, businesses with a yearly turnover of over Rs.100 crore started to issue e-invoices from 1st January 2021.
Phase III extended to businesses with an annual turnover of more than Rs.50 crore beginning from 1st April 2021. A year later, the government reduced the e invoice limit to more than Rs.20 crore as phase IV. Phase V has been implemented recently from 1st October 2022 for businesses with an annual turnover of over Rs.10 crore.
So, e invoicing applies to-
- Tax invoices,
- Debit notes,
- Credit notes, and
- Invoice-cum-bill of supply
The e invoicing system covers transactions such as-
- Taxable Business-to-Business (B2B) supply of goods or services,
- Business-to-Government (B2G) supply of goods or services,
- Export sales, and
- Sales falling under the Reverse Charge Mechanism (RCM)
The e-invoicing scope excludes the below documents, transactions and businesses-
- Exempted sales for which the bill of supply is raised,
- Imports
- Job works,
- Delivery challans
- Banks, financial institutions, and insurance companies
- Exhibiting cinematographic films on multiplex screens
- Non-banking financial companies,
- Goods transportation and passenger transportation agencies,
- Units in SEZ or special economic zones, and
- Government departments.
e-Invoicing objective and impact
The primary objective of further bringing down the threshold turnover limit for e-invoicing is to control GST evasion and fraud while enhancing GST compliance, among MSMEs.
Enteprirses along the supply chain can avail of genuine and verified Input Tax Credit (ITC). Hence, it keeps a tab on the GST revenue leakages for the government. e-Invoicing also promotes digitisation in India and enables one to digitise all transactions at the source, i.e., invoicing stage.
The main impact on the notified businesses is the drastic change in their business process, GSTR-1 preparation and alterations to their billing system or software. While GSTR-1 filing turns out to be easier by auto-population of details, reconciliations can become complicated, as explained in the afterwards.
Hasslefree access to formal credit channels, such as invoice discounting or invoice financing, provides leverage to small businesses since their invoices are validated and authenticated by the government.
However, large enterprises purchasing from small businesses which are notified for e-invoicing can have a daunting task at hand. They must ensure that their small vendors comply with the e invoicing mandate more regularly. It is essential since they can otherwise lose input tax credits or face delays in claims due to non-generation of e-invoices. Ultimately when e-invoicing system is streamlined by the vendor businesses, they enjoy claims of genuine tax credits.
