Why is e-invoicing a game-changer?

E-invoicing has officially been rolled out by the Government of India, and this new system promises to change the way we deal with the country's largest tax reform, the Goods and Services Tax.

We are already familiar with the concept of e-invoicing, but why is the significance of introducing this new system and how will it help taxpayers as well as the Government? To understand why e-invoicing is a game-changer, let's walk you through the steps involved in e-invoicing and why they are beneficial to both, the taxpayer and the Government.

One of the most common myths around e-invoicing is that it is a central portal for generating invoices. That is not true as it will be extremely inconvenient for both the taxpayers as well as the Government to have a single portal just to generate an invoice. Unlike common perception, e-invoicing is not the generation of an invoice on the GST portal. In reality, the e-invoicing system facilitates the integration of GST returns and e-way bill systems. This means business invoices will be electronically authenticated by the GST Network for use on the common GST portal.

Information from the invoice will be uploaded to the invoice registration portal in real-time and once authenticated or validated, and taxpayers will be provided with a digital signature and a unique invoice registration number or IRN. This invoice registration number will be used to match invoices while filing returns or authenticating e-way bills. This means businesses won't have to make manual and/or multiple data entries every time they file their returns. This system will also eliminate the need to generate separate e-way bills used while transporting goods. In a nutshell, e-invoicing will automate multi-purpose reporting with a one-time input of invoice details.

But automated data entry is only one of the reasons why e-invoicing is a game-changer. Let's find out what else can this new e-invoicing system do to benefit the taxpayer as well as the Government.

What's in it for the taxpayer?
When a business adopts the process of e-invoicing, the data from the invoice is sent directly from the supplier to the buyer's accounts payable system, thereby eliminating the need for manual and multiple data entries. Once a seller generates an e-invoice, he will be required to report invoice data just once, meaning no more reporting in multiple formats for GSTR-1 or e-way bills. But the elimination of multiple data entry is not just limited to accounts payable system. The same data can be auto-populated for filing GST returns and e-way bills under GST, making compliance processes much simpler.

Because the invoice will be electronically authenticated, there will be few issues of verification of input tax credit as data from the e-invoice will not only be reported to the tax department, it will also be sent to the buyer in their purchase register (inward supply). This means fewer cases of account reconciliation because the buyer will be able to accept or reject the data in real-time. Bonus - fewer cases of account reconciliation will lead to a faster reconciliation process.

What's in it for the Government?
In FY 2018-19 alone, GST frauds worth Rs. 37, 946 crores were detected by GST authorities. Tax evasion affects the overall revenue of the country, which in turn affects the common man. When there isn't enough revenue for expenditure, the Government is likely to hike indirect tax which will lead to further tax evasion, making the whole system a vicious cycle. It is important for the Government to nip tax evasion in the bud. With e-invoicing in place, the GST network will have a record of the complete trail of B2B invoices, and this will allow them to match and process only those invoices which have been electronically authenticated. This means they will be able to curb the number of fraudulent invoices submitted with a view to claim the input tax credit. How? With the use of e-invoicing, the Government will be able to conduct system level matching of input credit and output tax leading to a significant reduction in losses due to tax fraud and an overall increase in productivity in tax administration. Like we said, game changer!

While e-invoicing is not mandatory at the moment, it is voluntarily available to businesses who wish to adopt the process into their tax operations and get the first-hand experience of the new system.