Mandatory E-Invoicing Requirements for Businesses in India

The Central Board of Indirect Taxes and Customs (CBIC) initially made the e-invoicing system mandatory for taxpayers with annual turnovers exceeding Rs.50 crore, effective from April 1, 2021. Subsequently, this mandate was extended to businesses having a turnover above Rs.20 crore from April 1, 2022. As of October 1, 2022, the threshold was further reduced to Rs.10 crore.

Recent Updates on E-Invoicing Regulations

• May 10, 2023: The CBIC expanded e-invoicing requirements to include taxpayers whose turnover has exceeded Rs.5 crore in any financial year since 2017-18. These businesses are now required to issue e-invoices starting August 1, 2023.
• May 6, 2023: The GST department postponed the 7-day deadline for reporting older e-invoices on the IRP portals by three months, with a new effective date yet to be announced.
• April 13, 2023: An advisory from GSTN on April 12 and 13, 2023, mandated that taxpayers with an annual turnover of Rs.100 crore or more must submit tax invoices and credit/debit notes to the Invoice Registration Portal (IRP) within seven days of issuance, effective May 1, 2023.
• August 1, 2022: The e-invoicing system for B2B transactions was expanded to encompass businesses with an annual aggregate turnover ranging from Rs.10 crore to Rs.20 crore, starting October 1, 2022, as per Notification No. 17/2022.

E-Invoicing Compliance Requirements and Implementation Timeline

The government introduced mandatory e-invoicing to combat GST tax evasion. An initial committee, formed in May 2019, explored the feasibility and implementation strategies for e-invoicing in India, drawing insights from international practices. Following several draft releases, the e-invoice schema was officially launched in January 2020. Although initially planned for April 1, 2020, the mandate was postponed by the GST Council and eventually became operational on October 1, 2020, through a phased approach.

The implementation phases were as follows:

• Phase One (October 1, 2020): E-invoicing became compulsory for companies with an annual turnover exceeding Rs.500 crore.
• Phase Two (January 1, 2021): The requirement extended to businesses with a turnover greater than Rs.100 crore.
• Phase Three (April 1, 2021): Companies with an annual turnover exceeding Rs.50 crore were brought under the e-invoicing mandate.
• Phase Four (April 1, 2022): The government expanded the mandate to include companies with a turnover exceeding Rs.20 crore.
• Phase Five (October 1, 2022): Businesses with an annual turnover greater than Rs.10 crore were required to begin generating e-invoices.

Business Process Changes Due to E-Invoicing

Companies must integrate their existing systems with the government's Invoice Registration Portal (IRP) to facilitate the smooth generation of an Invoice Reference Number (IRN) for each B2B invoice. Modifications to accounting software will also be necessary to align with the e-invoice schema. The introduction of e-invoicing will bring about several changes in business operations:

1. Businesses must accurately identify and categorize transactions that fall under e-invoicing regulations for compliance purposes.
2. Maintaining comprehensive vendor and customer master data is crucial to include essential invoice information, such as bank and payee details.
3. Adjustments will be required in the GST return preparation process, as B2B supplies will be automatically populated, while B2C supplies still need manual entry.
4. Companies need to choose their e-invoicing compliance method, which could involve API integration, offline tools like GePP, or utilizing a GST Suvidha Provider (GSP).
5. A significant challenge for businesses, especially large retailers processing numerous B2B invoices daily, will be the continuous generation and capture of IRNs without causing customer delays. These businesses often benefit from GSP services for efficient implementation.

Consequences of Failing to Generate E-Invoices

Failing to generate an e-invoice is a violation subject to penalties. Penalties for non-generation can reach up to Rs.10,000 per invoice, while incorrect e-invoicing may incur a penalty of Rs.25,000 per invoice. Additionally, a recent GSTN advisory mandates that taxpayers with an annual turnover of Rs.100 crore or more must report tax invoices and credit/debit notes to the IRP within seven days of their issuance, effective May 1, 2023.

Beyond financial penalties, a delay in e-invoice generation can lead to further complications:

1. The GST returns will not be automatically populated.
2. Customers will be unable to claim legitimate Input Tax Credit (ITC).
3. Clients might reject invoices that do not adhere to e-invoicing regulations.

NIC Guidelines from March 16, 2021

The National Informatics Centre (NIC) released specific guidelines for taxpayers with turnovers above Rs.50 crore:

1. Designated GSTINs are now activated for e-invoicing, with open registration and login functionalities.
2. Taxpayers can prepare to register live invoices and access e-invoice bulk tools for JSON preparation and IRN generation.
3. E-way bills can be created for taxpayer-generated IRNs, and registration for e-invoice APIs is also available.

E-Invoice API Access Methods

Taxpayer systems can interact with the IRP for IRN generation through various mechanisms:

1. Direct API Access: Companies can directly access APIs by generating a username and password, then using the client ID and client secret of the company with API access.
2. E-Way Bill API Access: Taxpayers who already have access to e-way bill APIs can utilize their existing credentials to access the e-invoice system.
3. Via GSPs (GST Suvidha Providers): Taxpayers can create a username and password and collaborate with GSPs to access APIs using the GSP's client ID and client secret.
4. Via ERPs (Enterprise Resource Planning Systems): Similarly, taxpayers can generate a username and password and partner with ERP providers to access APIs using the ERP's client ID and client secret.

Preparation Steps for E-Invoicing Implementation

Given that e-invoicing is a relatively new concept in India, businesses should undertake specific measures to ensure a seamless transition:

1. Modify Accounting Software: Companies must reconfigure their ERP or accounting systems to facilitate communication with the IRP for IRN generation. Furthermore, printing infrastructure may need adjustments to accommodate new elements like QR codes, which could involve substantial investment.
2. Conduct Employee Training: Prior to e-invoicing, businesses typically used varied invoice formats. However, e-invoicing necessitates adherence to standardized formats, which comprise the e-invoice schema, masters, and e-invoice template. Therefore, employee training is essential to familiarize staff with these new compliance requirements.
3. Select Optimal ERP Integration: The most common integration methods for e-invoice generation are API-based and SFTP-based. Organizations should choose an integration approach that aligns with their budget and specific operational needs.
4. Prioritize Data Security: Data security is paramount, especially since e-invoices are frequently generated directly from an organization's ERP or accounting software, which holds critical business data. If utilizing ASP/GSP services, ensure they support two-factor authentication and are ISO 27001 certified.

Common Methods for IRN Generation

Several popular methods are available for generating an Invoice Reference Number (IRN):

1. Web-based: Taxpayers can input invoice details directly on the IRP website to generate an IRN.
2. API-based: This method allows a taxpayer's accounting system to interface with the IRP, generating IRNs individually or in bulk.
3. SMS-based: Invoice details are formatted and sent via SMS to the IRP for processing and IRN generation.
4. Mobile app-based: The GSTN provides mobile applications to assist taxpayers with e-invoicing compliance.
5. Offline tool-based: Invoice information can be updated using offline tools accessible on the IRP portal.
6. GSP-based: Taxpayers can engage the services of a GST Suvidha Provider (GSP) to facilitate IRN generation.