Mandatory e-invoicing in India has arrived: are you ready?

September 15, 2020 James Hayward

 

Mandatory e-invoicing for B2B transactions finally goes live in India on October 1st after a series of delays and constant changes to the frameworks. 

The shift will initially impact businesses with revenues above INR 5 billion.  This translates to roughly 48,000 Goods and Sales Tax (GST) registered businesses in the country.

India is just the latest in a long line shifting towards a variation of the ‘clearance model’ of tax reporting. Under this model businesses must submit e-invoices for authorization by the tax authority prior to, or during, the delivery of the invoice from the seller to the buyer.

In this article, we take a look at what’s happening in India, what it means for the way you do business in the country.

A turbulent path to mandatory e-invoicing

India’s mandating of e-invoicing and shift to the clearance model of tax reporting isn’t unique. In fact, it’s just one of a number of countries making the change in the coming years as tax authorities look to maximize revenue collection while also promoting digital business practices.

 

But India’s journey to clearance has been anything but plain sailing. In the past few years there’s been shifting deadlines, changes to the invoicing frameworks, and a general lack of clarity over what businesses need to do to prepare. Which, all combined, have made it incredibly difficult for organizations to ready their systems and processes.

Most recently the authorities pushed back the deadline for go live at the eleventh hour because some systems were not yet ready and there had been little take up of the central upload service during the voluntary trial period.

“We are looking forward to e-invoicing because it should organise things a lot more, but there are lots of teething issues – and I'm talking about very small issues that we're still dealing with.”

Mohan Nusetti, VP, Indirect Taxation, Lupin 

Source — International Tax Review

Yet, despite these issues, and calls from the business community for a further extension to the deadline, e-invoicing in India will be mandatory for large businesses on October 1st.

How India’s e-invoicing system works

Rather than using an existing standard like PEPPOL—which was in fact originally considered—for its e-invoicing framework, the Indian authorities have created their own unique system.

From October 1st, qualifying tax paying businesses in India must send e-invoices from their systems to the central Invoice Registration Portal (IRP) in JavaScript Object Notation (JSON) format. Here the authorities will carry out a series of checks to validate the invoice. These include:

  • Completion of data in all mandatory fields

  • Validity of supplier Goods and Services Tax Identification Number (GSTIN)

  • Validity of buyer GSTIN

  • Validity of invoice number and the financial year

  • Whether the invoice already exists in the GST system

If approved, the system will assign the invoice a unique Invoice Reference Number (IRN). It’ll also generate a unique QR code to allow both supplier and buyer to confirm authenticity of the e-invoice and proof of registration in the GST system.

Getting your business ready

Any forced shift in businesses processes creates numerous challenges. And for businesses in India the lack of clarity around the specifics of the move to clearance, tight timeframes, and the disruption caused by the COVID-19 pandemic have made it especially difficult. 

One key challenge we’ve seen businesses have is adapting existing tools and systems to meet the new requirements. In fact, this is a common issue in many markets that have made the shift to mandatory e-invoicing. Quite often the ERP or accounts systems businesses have in place just aren’t flexible or robust enough to meet the new requirements. 

As a result, companies end up missing the deadlines and incurring fines and penalties–which will be up to INR10,000 per invoice in India’s case. Or they’re forced to implement painful workarounds that negate all the benefits they should obtain by shifting to digital invoicing. 

Our friends at Deloitte have also highlighted some other considerations for businesses needing to comply with the regulations:

  • Identifying all possible transactions attracting e-invoicing (like exports/imports/cross charges/asset transfers etc.)

  • Updating masters of vendors and customers to cater to additional information required for invoices (like payee details/bank details/PIN codes etc.)

  • Flagging vendors into small and large categories to identify data collation requirements

The time to go digital is now 

While on the surface, India’s shift to mandate e-invoicing looks to create more problems than it solves for businesses in the country. The opposite is in fact true. 

As we’ve seen elsewhere, the mandating of e-invoicing allows businesses to:

  • Reduce invoice processing costs 

  • Accelerate the invoice processing cycle

  • Drive more transparency into the supply chain 

  • Minimize  late payments and the associated seller enquiries

  • Enhance fraud mitigation and risk management. 

And that’s not all. Digitally connecting the supply chain through e-invoicing is the catalyst for a wider transformational change. Change which enables companies to create a more robust and flexible supply chain that’s a value creator for the organization.

About the Author

James Hayward

James is a Senior Content Marketing Manager at Tradeshift, focused on crafting compelling stories that provide supply chain professionals with unique insights and actionable advice on how to take their organization to the next level. A journalist by trade, James was previously the Global Editor at Treasury Today magazine.

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