Come April 1 and e-invoicing will be mandatory for business-to-business (B2B) transactions for taxpayers having a turnover of over Rs 50 crore from April 1, 2021.
At present, issuing electronic invoices is mandatory for businesses with a turnover of Rs 100 crore and more.
E-invoicing replaces the physical invoice and will soon replace the existing eway bill system, and taxpayers will not have to generate separate e-way bills.
However, small firms may find it challenging to comply with the new norms.
Small businesses in small towns may face some difficulties with technology-led business processes.
A business needs to validate mandatory invoice information before uploading it to e-invoice systems to avoid rejections, otherwise, they may have to spend more time.
Firms will need to be vigilant while generating e-invoice as there are restrictions with the cancellation of the invoice, which must be carried out within the same day of the transaction.
How does e-invoicing work?
E-invoicing replaces the physical invoice and will soon replace the existing e-way bill system, and taxpayers will not have to generate separate e-way bills.
Under e-invoicing, taxpayers have to generate invoices on their internal systems (ERP/accounting/billing software) and then report them online to the Invoice Registration Portal (IRP).
The IRP will validate the information provided in the invoices and return the digitally signed e-invoices with a unique ‘Invoice Reference Number (IRN)’ along with a QR Code to the taxpayer.
Gaming the system
Small businesses use informal sales invoices to under-report turnover, which will be curbed by the move.
E-invoicing makes it difficult to show lower retail sales as the wholesale purchases are already reported to the government. The tax authorities can seek an explanation for the mismatch in wholesale buys and the final sales. If the purchases are higher and sales are lower, the taxman can ask the business to show inventory.
The government expects e-invoicing to bring other major advantages, such as improving the payment cycle for industry and giving a boost to invoice-based lending to MSMEs.
Last month, the board had exempted non-banking financial companies, insurance companies, banks and financial institutions, and exports from
using dynamic quick response or QR codes on e-invoices issued to consumers. Exports have been exempted from the QR code requirement since such shipments are treated as business-to-business supplies. The board had notified the mandatory use of dynamic QR codes on such invoices issued by companies with an aggregate turnover of more than Rs 500 crore in March last year.
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