If GST was a path-breaking reform, e-invoicing is set to overhaul how India does business. E-invoicing is not just a migration from paper to e-invoices that are authenticated and digitally stamped through a government portal. E-invoicing will transform the relationship between a business and its suppliers, its customers and also with the tax administration.

E-invoicing in the Indian context refers to an invoice which is electronically generated and then authenticated through the IRP (Invoice Registration Portal) for further use on the GST portal. Every invoice which goes through the IRP of the GST network will get a unique identification number. These details of the invoice are then made available to the customer.

Therefore, this digital document can be used by customers to record and by the tax administration to review. Right now e-invoicing is being made applicable to businesses with turnover in excess of ₹500 crore. It is only a matter of time when it will be rolled out to other businesses.

This widespread implementation of e-invoicing will be a key driver of change. Automation in the invoicing process will significantly improve tax compliance. Review of returns by tax officers has largely been a post-mortem exercise. Fraudulent businesses took advantage of this gap between timing of tax payment and its reporting to the government. Through e-invoicing, the traceability of the buyer and the seller will be clearly established, thus removing scope for any devious accounting and faulty ITC (input tax credit) claims.

The tax administration will also now have access to real-time data of business activity and can carry out large-scale data analysis through its own systems. These systems can also be linked to direct tax collections. Revenue, inventory, product pricing and other items can be verified between the two government databases. The government can carry out accurate analysis to estimate value added by various suppliers. This can improve transparency leading to better policies for the success of businesses.

Gradually, e-invoicing can be pushed to smaller businesses and other types of documents such as, export and import documentation. This way the government can successfully close the data gap that exists between its various systems.

E-invoicing is not just for the digital world, it will also establish a critical linkage with the movement of goods in the real physical world. Tax departments will be able to comfortably verify the movement of goods that is invoiced and evidenced through their own portals. An essential step in this chain will be the coming of RFIDs, which will allow auto-authentication as goods cross State borders and IDs are validated electronically.

While the tax administration will vastly improve, e-invoicing has positive outcomes for other critical business processes. From accounts receivables to accounts payable, storage of invoices and reconciliation of GST returns will also benefit from this automation. The working capital of a business depends heavily on the receipts from customers and outlay it needs to pay its suppliers. When invoices are electronically generated and received, they can be recorded accurately and on a timely basis.

With e-invoicing, doing business has to be reimagined. Several challenges may lie ahead, but the potential benefits from this far outweigh the costs.

The writer is Founder and CEO, ClearTax

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