Ultimate Guide to E-Invoicing: Enhance Productivity and Ensure Tax Compliance

1. Introduction 

1.1 Background 

The GST Council has approved the introduction of e-invoicing in India as a phased implementation for reporting business-to-business (B2B) invoices to the GST System. The need for a standardized e-invoice format arose due to the absence of a common standard in the country. The finalized standard was developed in consultation with trade/industry bodies and the Institute of Chartered Accountants of India (ICAI). The objective of having a standard is to ensure complete interoperability of e-invoices across the entire GST ecosystem, eliminating the need for manual data entry and enabling machine readability and uniform interpretation.

The GST Council approved the standard for e-invoicing in its 37th meeting in September 2019, and the e-invoice schema has been published on the GST portal. An explanation document has been created to understand the concept and operation of e-invoicing better and clarify any misconceptions.

The implementation of e-invoicing in India is significant due to the high volume of daily business transactions and the diverse range of non-standardized invoice formats used. The primary objective is to ensure interoperability across the entire GST ecosystem, allowing e-invoices generated by one software to be readable by any other software, thereby achieving uniform interpretation through machine readability.

Furthermore, e-invoicing aims to integrate invoice reporting into the regular business process, eliminating the cumbersome task of compiling invoices at the end of a return period. It also addresses the challenge of fictitious Input Tax Credit (ITC) claims through fake invoices, a major concern for tax authorities.

The e-invoice system is expected to help combat fraudulent practices by providing real-time access to data for tax authorities. It also aims to simplify return filing by pre-populating the return with e-invoice data, reducing reconciliation issues.

Adopting e-invoicing in India is a significant step toward streamlining the invoicing process, enhancing tax compliance, and improving efficiency in the GST ecosystem.

1.2 Purpose and Intended Audience 

The purpose of this document is to provide a comprehensive explanation of the operational procedures involved in generating e-invoices using offline and online tools. It is specifically designed for registered taxpayers under the Goods and Services Tax (GST) system in India, as they are the main stakeholders of the e-invoice system.

The document aims to explain the concept of e-invoicing, how it functions, and the basics of the standards that have been established. It is intended to be a helpful resource for taxpayers, tax consultants, and software companies to understand and implement the designed e-invoice standard.

By providing clear guidance on the operational aspects of e-invoicing, this document aims to facilitate the adoption of the standard and ensure smooth compliance with the e-invoice system under GST.

1.3 URL or Web site address 

The URL or website address for the e-invoice system under GST is: https://einvoice1.gst.gov.in/

2. E-Invoice System

2.1 What is E-invoice? 

E-invoice is the digital or electronic format of an invoice generated by software or machines. It is not limited to invoices generated from a central portal of the tax department. The purpose of e-invoicing is to standardize the format in which the electronic data of an invoice is shared, ensuring interoperability among different software systems.

While different accounting or billing software may generate similar invoices, they often use their proprietary formats to store electronic information. This can create difficulties in understanding and processing the data by the GST System or other computer systems.

A standardized e-invoice format has been introduced to enable the seamless sharing and interpretation of invoice data across different software systems. However, this standardization does not impact the physical or electronic output of the invoice that users see. Taxpayers can continue using their existing accounting systems, ERP software, or other tools to create invoices like before.

Taxpayers can utilize the bulk generation tool available on the e-invoice portal for bulk generation of invoices. This tool allows users to enter invoice details and generates a JSON file to be uploaded to the e-invoice system for processing.

2.2 E-Invoice and Tax Department

The implementation of the e-invoice system by tax departments worldwide consists of two key components:

a) Generation of invoices in a standardized format: The aim is to ensure that invoices generated in one system can be easily read and understood by another. This standardization promotes interoperability among different software systems, eliminating the need for manual data entry and reducing errors.

b) Reporting of e-invoices to a central system: The e-invoice system reports the generated invoices to a centralized platform or system. This gives tax authorities real-time access to invoice data, which can be used to pre-populate tax returns and reduce reconciliation issues.

The adoption of e-invoicing by tax departments is driven by the desire to streamline processes, enhance efficiency, and minimize errors. With advancements in technology, widespread internet access, and affordable computer systems, e-invoicing has become feasible and is being embraced by more than 60 countries globally.

In the case of India, the responsibility to design and update the e-invoice standard lies with the Goods and Services Tax Network (GSTN). Adopting e-invoicing by the GST System is not just a tax reform but also a business reform, as it ensures the seamless interchangeability of e-invoices and reduces transcription and other errors that may occur during manual processes.

2.3 Invoice Reference Number (IRN)

The Invoice Reference Number (IRN) is a unique identifier generated by the e-invoice system for each document, such as an invoice, debit note, or credit note, submitted on the system. The IRN is a 64-character alphanumeric code that serves as a unique identity for the document within the GST system.

The IRN is generated using a hash generation algorithm, which computes a hash based on the GSTIN (Goods and Services Tax Identification Number) of the entity generating the document, the year, and the document number (e.g., invoice number). This computation ensures that each generated IRN is unique for every document.

The generation of the IRN can be done by the e-invoice system itself or by taxpayers using the specified algorithm. The IRN acts as a unique identifier for the document throughout the financial year within the GST system, providing a standardized and reliable means of identification and reference.

2.4 QR Code 

In the e-invoice system, a QR code (Quick Response Code) and the Invoice Reference Number (IRN) are generated for each invoice. The QR code is convenient for accessing, validating, and viewing invoice information from hand-held devices.

The QR code contains the following details from the e-invoice:

• GSTIN (Goods and Services Tax Identification Number) of the supplier
• GSTIN of the recipient
• Invoice number assigned by the supplier
• Date of invoice generation
• Invoice value, including the taxable value and the total tax amount
• Number of line items in the invoice
• HSN (Harmonized System of Nomenclature) code of the main item, which refers to the line item with the highest taxable value
• Unique Invoice Reference Number (hash)

The QR code is digitally signed, ensuring its authenticity and integrity. It can be verified on the e-invoice system’s central portal and by using an offline application. This feature is particularly useful for tax officers who may need to check invoices on the roadside or in areas with limited internet connectivity.

2.5 E-invoicing System under GST 

Implementing the e-invoicing system under GST aims to address the issue of tax evasion by preventing the issuance of fake invoices. It is part of the government’s efforts to enhance revenue collection and increase compliance with the GST regulations. By capturing invoice data through a centralized portal, the e-invoicing system simplifies business filing returns.

There are more than 1.21 crore registered businesses in India under the GST, with 20 lahks operating under the composition scheme. To avoid duplication and ensure seamless integration, the e-invoice system will be closely linked to the GST system, which serves as the central repository for all Invoice Reference Numbers (IRN) generated. As a result, it will be possible to populate the ANX 1 (Annexure of Supplies) for the supplier based on the IRN data already available in the GST system. This integration between the e-invoicing system and the GST system helps streamline compliance processes for taxpayers.

2.6 Objective 

The objective of implementing the e-invoicing system in India is to address the challenges posed by the large volume of business transactions and the use of diverse, non-standardized invoice formats. By making invoice reporting an integral part of the business process, the system aims to eliminate the laborious task of compiling invoices at the end of a return period.

One of the key objectives is to tackle the issue of fraudulent practices, such as claiming fictitious Input Tax Credit (ITC) through fake invoices. The e-invoicing system will help curb these actions by providing tax authorities real-time access to invoice data, enabling them to identify and prevent fraud cases more effectively.

Overall, implementing the e-invoicing system aims to enhance transparency, reduce tax evasion, and streamline the reporting process, benefiting taxpayers and tax authorities.

2.7 Stakeholders 

The stakeholders involved in the implementation of the e-invoice system include:

1. Taxpayers: The primary stakeholders are registered businesses under the GST regime. They are responsible for generating and issuing e-invoices in the standard format, complying with the system’s requirements, benefiting from the streamlined reporting process and claiming Input Tax Credit (ITC).
2. Tax Authorities: The tax authorities, including the Goods and Services Tax Network (GSTN) and the Central and State tax departments, play a crucial role in overseeing the implementation and enforcement of the e-invoice system. They have access to real-time data and can use it for effective monitoring, auditing, and enforcement purposes.
3. Software Providers: Software companies that develop accounting, billing, and enterprise resource planning (ERP) systems are important stakeholders. They must update their software to incorporate the e-invoice standard and ensure interoperability with the GST system. These providers also play a role in educating and supporting taxpayers in adopting the e-invoice system.
4. Business Associations and Trade Bodies: Industry associations and trade bodies represent the interests of businesses and provide guidance and support in adopting the e-invoice system. They participate in consultations with the government to address concerns and ensure that the system meets the needs of various industries.
5. Consumers: While not directly involved in generating or reporting e-invoices, consumers benefit from the e-invoice system. It helps curb tax evasion, promotes transparency in business transactions, and ultimately contributes to a more efficient and fair tax system.

Overall, the e-invoice system aims to address the expectations and concerns of these stakeholders by streamlining the invoicing process, enhancing transparency, and facilitating the accurate claiming of the Input Tax Credit.

2.8 Benefits of the E-invoice System 

The benefits of the e-invoice system under GST are as follows:

1. Standardization:

The e-invoice system ensures the standardization of invoice data, eliminating the need for reporting in multiple formats. This simplifies the invoicing process and promotes interoperability among different software systems.

2. Seamless Reconciliation:

The system facilitates seamless reconciliation between suppliers and recipients, ensuring accurate computation and claiming of Input Tax Credit (ITC). This reduces discrepancies and enhances control over ITC.

3. Reduced Compliance Burden:

The e-invoice system significantly reduces the overall compliance burden for taxpayers. It automates the generation of sales and purchase registers, simplifying the return filing process and minimizing input credit verification issues.

4. Elimination of Fake Invoices:

The system helps curb tax evasion by reducing the occurrence of fake invoices. It enables system-level matching of input credit and output tax, ensuring the accuracy and validity of transactions.

5. Near Real-time Information Availability:

The e-invoice system provides near real-time availability of invoice information to all relevant participants in the supply chain. This enables timely reconciliation, verification, and decision-making for businesses.

6. Environmental Benefits:

Adopting e-invoices eliminates the need for paper-based invoices and waybills, leading to significant paper savings and a more environmentally friendly approach. It reduces paper waste and promotes sustainable business practices.

7. Efficiency for Tax Officials:

The e-invoice system automates and streamlines collecting and matching invoice data, saving tax officials from manual and monotonous work. It enables them to focus on critical tasks such as auditing and enforcement.

The e-invoice system brings several advantages, including improved compliance, reduced paperwork, enhanced transparency, and efficient reconciliation processes. It benefits taxpayers and tax authorities by simplifying operations, reducing errors, and curbing tax evasion.

2.9 How E-invoice will be beneficial to taxpayers: 

The implementation of e-invoicing brings several benefits to taxpayers:

1. Time Savings:

E-invoicing eliminates unnecessary steps in the invoicing process, saving time for taxpayers and their customers. The automation and streamlined workflow enable quicker invoice generation and delivery.

2. Cost Reduction:

E-invoicing eliminates the need for paper-based invoices and postal fees. Taxpayers save on printing, stationery, and mailing costs by going digital. Additionally, the time saved with e-invoicing allows businesses to focus on value-adding tasks rather than manual invoice processing.

3. Reduced Errors:

Manual data entry and typographical errors are minimized with e-invoicing. The system automates data capture and validation, reducing the risk of mistakes. This ensures accurate and error-free invoices, improving efficiency and customer satisfaction.

4. Improved Customer Service:

E-invoicing offers convenience to customers by delivering invoices directly to their desired platform. They can easily access and manage their invoices, resulting in a better customer experience. It also simplifies payment processing and reconciliation for both parties.

5. Enhanced Invoice Tracking:

With e-invoicing, taxpayers can easily track the status of their invoices, including when they are sent, viewed, and paid. This provides better visibility and control over the invoicing process, reducing delays and improving cash flow management.

6. Greater Control and Insights:

Online invoicing software provides a centralized invoice management platform. Taxpayers can access and retrieve invoice data from anywhere, on any device. This enables better control, organization, and analysis of invoicing data, facilitating informed decision-making.

Overall, e-invoicing offers numerous advantages to taxpayers, including time and cost savings, reduced errors, improved customer service, streamlined invoice tracking, and better control over the invoicing process. It is a more efficient and effective way to manage invoices, benefiting businesses of all sizes.

2.10 Features of the E-invoice System 

The e-invoice system offers several features to users:

1. User-Friendly System: The system is designed to be user-friendly, with easy-to-use operations and a simple interface for users to navigate.
2. Quick and Easy Generation: The system provides multiple methods for the quick and easy generation of e-invoices, allowing users to generate invoices efficiently.
3. Multiple Modes of Generation: Users can choose from various modes of e-invoice generation based on their preferences and requirements.
4. Customizable Masters: Users can create and manage their masters, such as customer, supplier, product, and transporter details. These masters can be used while generating e-invoices, making the process more efficient.
5. Sub-User Management: Taxpayers or registered persons can create, modify, and freeze sub-users within the system. They can assign roles and activities to sub-users, enabling them to generate e-invoices on the taxpayer’s or registered person’s behalf.
6. Monitoring of Invoice Reference Numbers (IRN): The system allows registered users to monitor the number of IRNs generated by them on a specific date, providing them with tracking and reporting capabilities.
7. Integration with GSTR-1: The system automatically pulls relevant information from the e-invoices generated and populates the GSTR-1 return for the taxpayer. This eliminates the need to upload transaction details to the GSTR-1 return manually.
8. QR Code on E-invoice: Each e-invoice generated is accompanied by a QR code. The QR code facilitates easy and fast verification of the e-invoice, providing a convenient method for checking invoice details.

These features enhance the user experience, streamline invoice generation and management processes, and promote compliance with GST regulations.