From August 1, 2023, companies/entities in India with an annual turnover of more than Rs 5 crores in any financial year from 2017 to 2023 are required to issue E-Invoices to their B2B (Business to Business) customers. Failure to issue E-Invoices may result in the buyer not being eligible to claim Input Tax Credit (ITC) against the purchase. Additionally, all debit notes and credit notes issued by the covered companies/entities must also be in E-Invoice format.
Previously, the turnover threshold for mandatory E-Invoicing was Rs 10 crores, but it has been reduced to Rs 5 crores from August 1, 2023, meaning more entities have been brought into the E-invoicing net.
The penalty for non-compliance with E-Invoicing requirements for companies/entities with a turnover of more than Rs 5 crores in any financial year from 2017 to 2023 will be 100% of the tax due or Rs 10,000 (whichever is higher) for each instance of non-compliance.
Entities falling under certain categories, such as SEZ (Special Economic Zone) Units, banking services including NBFCs (Non-Banking Financial Companies), Goods Transport Agencies, Passenger Transport Agencies, Multiplex Cinemas, and Insurance Services are excluded from the E-Invoicing system and do not have to issue E-Invoices.
Companies can register for E-Invoicing through the portal http://einvoice1.gst.gov.in by entering their user credentials. To facilitate automatic E-Invoice generation, there are multiple government-approved GST API (Application Programming Interface) providers available in the market.
It is important for companies and retailers to ensure compliance of their suppliers/vendors with E-Invoicing requirements to avoid losing ITC and facing penalties for non-compliance.
Steps to be taken by the entities/companies having turnover above Rs 5 Crores
Registering in to E-Invoicing portal: Companies have to register for E-Invoicing through the http://einvoice1.gst.gov.in portal by entering their user credentials. User credential includes basic GST-related details of the entity.
Preparation of E-Invoice: E-invoice can be prepared either manually or electroniclly with the help of API (Application Programming Interface) service providers. For preparing it manually, accountants will have to upload the JSON of the invoices on the e-Invoicing Portal for validating the invoices to find & eliminate errors. The entity can purchase API licence from Government approved API providers to generate E-Invoice automatically.
Cancellation of E-Invoice
While generating E-Invoice one IRN (a unique code generated by IRP-Invoice Registration Portal)) number and an acknowledgement number is generated. The cancellation of IRN can be done within 24 hours from the generation of E-Invoice.
Penalty for not issuing E-Invoice by entity/company above Rs 5 Crores turnover
The penalty for non-compliance with E-Invoicing requirements for companies/entities with a turnover of more than Rs 5 crores in any financial year from 2017 to 2023 will be 100% of the tax due or Rs 10,000 (whichever is higher) for each instance of non-compliance.
E-Invoicing of Credit Notes/Debit Notes
Along with Invoices, Debit notes and Credit notes are also issued with digital signature by the entities who are required to mandatorily issue E-Invoice.
Risk of retailers and small and medium shops/establishments registered with GST
The small and medium scale vendors who are registered with GST site are also at risk of loss of Input Tax Credit (ITC) under GST Laws. If the Suppliers/Vendors do not comply with the provisions of e-invoicing, then the Recipients/Buyers can be disallowed Input Tax Credit (ITC) as one of the essential conditions to avail ITC as per Section 16(2)(a) of the CGST Act, 2017 (“CGST Act”) is possession of the tax invoice, which will be a valid tax invoice only when such invoice has valid IRN, digitally signed and having QR code assigned by the IRP. Thus the cost of E-Invoicing may be very high based on the taxable value of Invoice.
The small and medium vendors can safeguard the ITC by checking the compliance by collecting declaration form from the suppliers who do not issue E-Invoices. Format of declaration forms will be available in different websites and they can collect signed declarations from suppliers who fail to provide E-Invoice stating that those suppliers do not have a turnover of more than Rs 5 Crores in any previous years from 2017 to 2023.
Shift in GST department role more to governance than compliance
The new mandate by inclusion of more number of business entities to the E-Invoicing applicability will reduce the role and burden of the department in verifying compliance with proper governance. There will be a compliance check by the customer who is responsible to take 100% ITC credit from properly compliant supplier which thereby reduces the responsibility of GST department to check for the compliance of Assessees.
(The author is a finance professional with special interest in taxation)