What is E-invoicing under GST
What is E-invoicing?
E-invoicing refers to a method in which the entire B2B invoices that are generated by the accounting software, are electronically authenticated by GSTN (Goods and Service Tax Network) for any further use such as generating E-way bills, preparing returns, and the like. In fact, E-invoice does not involve generating or creating invoices from the common portal or the tax department; rather, it includes the submission of invoices already generated from the respective accounting software at the central GST portal.
However, the GST system fails to recognize the invoice formats generated by the different accounting/ billing software. In this scenario, there arises the need for a standard invoice format (schema) which could be easily uploaded on the GST portal. This standard schema needs to be followed by the entire accounting/ billing software in order to generate the JSON of every invoice in that format so as to make the uploading process on the GST portal easy. The E-invoice schema provided by the GST system has mandatory as well as non-mandatory fields which could be used by all types of businesses.
The E-invoice mechanism is likely to be rolled out in different phases starting from January 1st 2020, upon a voluntary basis. In the beginning, it will be applicable only for those taxpayers who are above a particular turnover or an invoice value, and also for volunteers. Later on, it will be implemented for the entire taxpayers in a step-by-step manner.
What are the Benefits of the E-invoicing System?
There are several benefits for implementing an E-invoicing system of which some are provided below:
- It enables the automatic preparation of GST returns (ANX-1 and ANX-2)
- It facilitates the system to match the input credit liability with the output tax, automatically
- E-invoice could be generated for invoices, credit/debit notes, and other appropriate documents
- E-invoicing can be further used for generating E-way bills by just providing the details of the vehicle
- It helps to decrease the issues concerned with input credit verification considerably, as the same data would be reported to the buyer as well as to the tax department
- The invoices which are uploaded by the suppliers for the purpose of authentication would be shared automatically with the buyers for reconciliation
- It offers complete information about the B2B invoices
- It enables one-time reporting of the B2B invoice data that is generated by the supplier, which helps in minimizing the efforts of reporting in different formats (GSTR 1/E-way bills).
How to Create an E-invoice?
Generally, the taxpayers would be accountable for the generation of an E-invoice, and they need to report the same to the Invoice Registration Portal (IRP) as well for authentication, following which it generates a unique Invoice Reference Number (IRN) and digitally signs the E-invoice. Further, it also generates a QR code and returns the invoice to the vendor.
Given below are the different steps involved in E-invoicing:
Step 1: The vendor creates the invoice in his accounting/billing system. This invoice should conform to the standard E-invoice schema and must have the necessary parameters. The vendor’s software generates a JSON for every B2B invoice, which would be uploaded on the IRP portal
Step 2: In the next step, an Invoice Reference Number (IRN) is generated, which is optional. In fact, the vendor himself can generate this number which is based upon the particular algorithm
Step 3: In this step, the JSON of the E-invoice is uploaded into the IRP by the vendor. This can be uploaded directly into the IRP, or by way of GSPs (GST Suvidha Providers), or other third parties
Step 4: In this step, the IRP generates/validates the Hash of the uploaded JSON, if it is done by the vendor. Further, upon authentication of the same by the central registry of the GST system, the IRP adds its signature on the invoice data. The Hash thus computed by the IRP becomes the IRN (Invoice Reference Number) of the E-invoice. This number shall be unique for each invoice, and serves as the unique identity for the same for the whole financial year in the GST system
Step 5: In this step, the uploaded data is shared with the GST/E-way bill system
Step 6: In this step, the IRP returns the digitally-signed JSON with IRN to the vendor, along with a QR code. Further, the registered invoice would also be sent to the vendor as well as buyer on their respective mail ids as per what was mentioned in the invoice.
In general, E-invoices are not generated by the GST portal; rather, those are generated by the accounting/billing system of the taxpayers. They will be uploaded into the GST ANX-1, once they have been validated as well as registered by the invoice registration system. An E-invoice will be authenticated through the digital signature of the IRP. There are many benefits for the E-invoicing system including the auto-preparation of GST ANX-1 and ANX-2 returns, handling of input credit verification issues, and many more.