The Goods and Services Tax (GST) e-invoice system in India was introduced to streamline the process of invoicing, improve tax compliance, and reduce tax evasion. Under this system, businesses must generate a unique Invoice Reference Number (IRN) for each invoice issued, which is authenticated by the GST network. The e-invoice system is mandatory for certain businesses and has been progressively rolled out across different turnover thresholds.
Key Components of the E-Invoice System
1. E-Invoice:
- The e-invoice is a digitally signed invoice that includes detailed transaction data in a structured format (JSON or XML).
- The format follows the GST e-Invoice Standard, which is an interoperable data format.
- The invoice must be uploaded to the GST Portal (GSTN) for validation and IRN generation.
2. IRN (Invoice Reference Number):
- The IRN is a unique 64-character code generated by the Invoice Registration Portal (IRP) after validating the invoice data.
- This number is tied to the e-invoice and serves as proof of validation.
- It is crucial for both buyers and sellers for GST filing, ensuring both parties agree on the transaction.
3. QR Code:
- A QR code is generated on the e-invoice containing details like the IRN, GSTIN of the supplier, the supplier’s name, the buyer’s name, and the invoice value. This makes it easy to verify the invoice using a mobile app.
4. GST Portal / IRP (Invoice Registration Portal):
- The IRP (which is managed by the GST Network) is the platform where all e-invoices are uploaded for validation.
- It generates the IRN and returns a signed e-invoice with the IRN and QR code.
- The e-invoice is then transmitted to theGST Portal, making it available for filing returns such as GSTR-1.
Who is Required to Generate E-Invoices?
The e-invoicing system was implemented in a phased manner, and currently, it is mandatory for businesses that meet certain criteria, based on their annual turnover:
1. Turnover Threshold:
-Rs. 5 Crore and more: Mandatory for all businesses in this category, irrespective of the nature of the goods or services. starting from April 1, 2025.
-Below Rs. 5 Crore: E-invoicing is optional for businesses below this threshold but may become mandatory for businesses in certain sectors, such as large exporters.
2. Specific Types of Transactions:
- E-invoice generation is required forB2B (Business-to-Business) and exports of goods or services.
-B2C (Business-to-Consumer) transactions are typically not required to have e-invoices unless mandated under specific circumstances.
Structure of an E-Invoice
The e-invoice is composed of the following key components:
1. Basic Details:
-Supplier Information: GSTIN, name, address, etc.
-Buyer Information: GSTIN, name, address, etc.
-Invoice Details: Invoice number, date, and type of supply (B2B, export, etc.).
2. Itemized Details:
- Goods and/or services being supplied.
-HSN (Harmonized System of Nomenclature) code for goods or SAC (Service Accounting Code) for services.
- Quantity, unit of measurement, value, discount, tax rate (CGST, SGST, IGST, etc.).
3. Tax Details:
- The amount of GST (CGST, SGST, IGST) charged for each item.
- Total taxable value and total tax amount.
4. Other Details:
- Additional information like place of supply, shipping address, etc.
- Signature of the supplier (digitally signed).
Steps to Generate an E-Invoice and IRN
The following steps outline how businesses generate e-invoices and obtain the IRN:
1. Prepare the Invoice Data:
- Create the invoice with all necessary details, including the supplier’s GSTIN, buyer’s GSTIN, item-wise details, and taxes.
2. Generate the E-Invoice:
- Using e-invoicing software or an API (Application Programming Interface) provided by the government or third-party providers, submit the invoice details to the IRP (Invoice Registration Portal) in the prescribed format (JSON or XML).
- The software automatically verifies the GSTIN, HSN codes, and other information to ensure the invoice complies with GST norms.
3. Validate the Data:
- The IRP performs checks on the data. If the data is valid, it generates the IRN and attaches a QR Code to the e-invoice.
- If any data is invalid, the system will return an error with details that need correction.
4. Receive IRN & QR Code:
- Once validated, the IRP generates the IRN and a digitally signed e-invoice with a QR code. This e-invoice is made available for download.
- The e-invoice is now a valid GST-compliant invoice.
5. Record Keeping:
- The e-invoice must be recorded in the supplier’s records for further filing in GST returns such as GSTR-1 (sales return).
- The buyer can use this information for input tax credit (ITC) purposes when filing their own returns.
6. Share with Customer:
- The supplier can email the e-invoice to the customer, and the buyer can verify the invoice details using the IRN and the QR code.
E-Invoicing and GST Returns
Once the IRN is generated, the e-invoice details are automatically reflected in GSTR-1, a return that businesses must file to report their outward supply of goods and services. This automation reduces the manual effort involved in maintaining records and submitting returns, ensuring greater accuracy and timeliness.
- Real-Time Updates: The data entered into the e-invoice system is directly fed into the GST system, allowing for real-time updates in tax filings.
- Input Tax Credit (ITC): The buyer can use the e-invoice data for claiming Input Tax Credit (ITC) as the government has integrated the e-invoicing system with the GST return filing process.
Advantages of the E-Invoice System
1. Reduced Tax Evasion:
- E-invoicing helps to reduce the chances of fraudulent invoices and underreporting of sales as all transactions are verified in real-time.
2. Streamlined Processes:
- The system reduces manual intervention, making invoicing faster, easier, and more accurate.
3. Improved Compliance:
- With the automatic generation of IRNs, businesses are forced to follow GST norms, leading to higher levels of tax compliance.
4. Seamless Integration with GST Returns:
- The e-invoice data is automatically reflected inGSTR-1, reducing the effort required to manually file returns.
5. Global Standards:
- The e-invoice format follows globally accepted standards likeJSON or XML, ensuring ease of integration with different software and systems worldwide.
Challenges of the E-Invoice System
1. Technical Challenges:
- Small and medium-sized enterprises (SMEs) may face challenges in adopting the technology required for generating e-invoices, particularly if they lack in-house IT support.
2. Integration Issues:
- Businesses that rely on multiple accounting and ERP (Enterprise Resource Planning) systems may face challenges in integrating their systems with the e-invoice platform.
3. Compliance Costs:
- For businesses with low turnover or those in the unorganized sector, the cost of compliance with the e-invoice mandate may be a burden, as they may need to invest in new software and training.
4. Internet Connectivity:
- In regions with poor internet infrastructure, businesses may face delays or issues when uploading invoices to the IRP.
Future of the E-Invoice System
The e-invoicing system is expected to evolve with advancements in technology. The Government of India plans to:
1. Expand the Scope: Gradually, the e-invoicing mandate may extend to more businesses, including those with lower turnovers or businesses involved in sectors with high tax evasion risks.
2. Integration with Other Digital Platforms: There may be greater integration between e-invoicing and other digital tax filing systems (like GST returns, e-way bills, etc.), improving efficiency further.
3. Adoption of AI and Blockchain: The future may see the adoption of artificial intelligence (AI) and blockchain for further enhancing compliance, security, and fraud detection in the invoicing process.
Conclusion
The GST e-invoicing and IRN system is a significant step toward digitizing India’s tax ecosystem. It reduces fraud, simplifies tax filing, and enhances transparency. While there are some challenges related to adoption and technical integration, the system holds the potential to create a more efficient and compliant tax environment.
