Opinion

E-Invoicing: Simplifying compliance for the taxpayer

ARchit Gupta | Updated on June 07, 2021

Taxpayers can generate e-way bills and draft GST returns with a click of a button

For India, the launch of e-Invoicing has been a game-changer. It has been an evolution of sorts that streamlined invoicing, revamped tax reporting, and fuelled the interoperability of direct and indirect tax ecosystems. Eight months post the launch of e-invoicing, let’s analyse how this digital reform has transformed compliance in India.

A look at the latest statistics released by the e-invoicing system shows that there are close to one lakh suppliers who have implemented e-invoicing. 36,910 taxpayers with turnover of over ₹500 crore and 52,595 taxpayers in the ₹100 -500 crore bracket are successfully generating e-invoices.

E-invoicing on track to becoming a foolproof mechanism

This may be just a small fraction of the total registered taxpayers under GST. However, it forms a substantial part of the tax revenues generated in India. Besides, several lakhs of businesses are likely to join in under the ₹50-100 crore segment, and in the months to come, the government could extend e-invoicing to all businesses for complete accountability and digitisation.

Non-apparent benefits

For those new to the e-invoicing game, let's break this down. E-invoicing is a system of digitally generating and reporting invoices in real-time to the government. It entails the generation of an invoice on the taxpayer’s accounting system and thereafter reporting the same to the Invoice Registration Portal (IRP). The IRP will, in turn, generate an Invoice Reference Number (IRN) and QR Code, and then digitally sign the invoice. This invoice sent back to the taxpayer is called an electronic invoice or e-invoice.

If we take a look at some of the benefits of the e-invoicing system, there’s invoice format standardisation, interoperability of data between systems like e-way bills and GST returns, the push to smooth ITC claims and the overall ease of doing business. However, the non-apparent benefits are equally relevant.

e-invoicing mandatory for businesses with turnover of ₹50 cr or more

In India, tax compliance system has always been plagued by tax evasion. One of the major issues impacting revenue collections is fake invoices. Fraudulent taxpayers use fake invoices to unlawfully claim input tax credit. The introduction of e-invoicing will now finally solve the problem of fake invoices and enable only genuine ITC claims.

With e-invoicing, the government can easily trace the seller and the buyer, and there will be less scope for any kind of tax evasion and data fudging. India has adopted the clearance model of e-invoicing. This means that the seller has to get approval from the administration, in this case the IRP, before issuing the invoice to the buyer. The availability of transactional data as and when they occur would enable tax authorities to detect and act in the shortest time possible. In the long run, the need for scrutiny by the tax authorities will reduce, and the effort required by the government on tax administration will significantly drop.

Linkage between direct, indirect tax collections

The real-time availability of data will also help the government expand its reach over other compliances such as e-way bills, and even more critically, the linkage between direct and indirect tax collections. Up until now, there has been no direct and automated linking between the revenues that businesses disclose in their income tax and GST returns. e-Invoicing will facilitate this process. With data recorded digitally and in real-time, it will not be long before GST revenues reported will be matched by the government with the income tax returns filed. It will be a master stroke if it were to happen and a massive boost for the Revenue.

Advantage, taxpayers too

Taxpayers, on the other hand, are not going to be at the losing end. For taxpayers, GST compliance will be simplified to a large extent. e-Invoicing has already reduced data entry efforts by automatically transmitting data from e-invoices to the GST portal and the e-way bill systems. Taxpayers can generate e-way bills and draft GST returns with a click of a button. Further, taxpayers can be assured that their tax credit claims are genuine.

Simplified compliance also equals less money spent. Hence, organisations that have adopted e-invoicing can hope to cut down on compliance costs in the long run. One of the key drivers here will be the reduction in manual reconciliation efforts. It had been an arduous process in the pre-e-invoicing era and a task most taxpayers wished to eliminate. Taking all transactions digital helps enable one-click data reconciliations between books and returns. Taxpayers are more confident in their data being reported and interest and penalties can be curtailed.

Revolution, not just reform

The best part about digitisation is that it ensures automation to a large extent. This is why various industries can leverage off the benefits of e-invoicing to simplify business processes such as accounts receivables and payables and build efficiencies in procure-to-pay and order-to-cash cycles. While getting faster payments are a massive incentive to implement e-invoicing, the intangible benefits cannot be ignored such as increased transparency in operations and enhanced internal control. Overall, e-invoicing is not just any ordinary reform. It’s a revolution.

The author is Founder and CEO, ClearTax

Published on June 07, 2021

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