E-Invoicing and Real-Time Reporting in India - Fundamentals

E-invoicing has become a significant and popular trend in indirect taxation in recent years. The excitement surrounding e-invoicing stems from its impact on tax compliance, the challenges faced by companies in meeting real-time or near real-time reporting requirements, and the digital tax transformation it necessitates.

Numerous countries around the world have already implemented e-invoicing regulations and systems, and many others are actively working towards their implementation. One reason for this is that having access to (near) real-time transactional data can offer several advantages. It may improve the efficiency of invoice processing, reduces instances of tax evasion and fraud, promotes tax compliance, and enhances the accuracy of tax reporting.

In India, the government has introduced the e-invoicing system as a part of its digitalization efforts to simplify and standardize the invoicing process. In this article, we will discuss the fundamentals of e-invoicing in India, its key features, including e-invoice specifications, its impact on businesses and how companies should prepare for the future of e-invoicing in India.

What is e-invoicing in India?

The term e-invoicing, also known as electronic invoicing, has a very broad connotation as it encompasses the electronic generation, transmission, and processing of invoices, which can be in different formats such as XML, JSON, or PDF. The primary goal of e-invoicing is to automate invoice processing and establish an efficient business workflow, leading to quicker payments and thereby helping cash flow generation.

E-invoicing in India is a system in which B2B (business-to-business) transactions are authenticated electronically by the Goods and Service Tax Network (GSTN). For each transaction, an identification number referred to as an Invoice Reference Number (IRN) is issued against every invoice by the Invoice Registration Portal (IRP). In simpler terms, e-invoicing is a system of creating invoices in a standardized format, enabling seamless exchange and compatibility between different systems and stakeholders involved in the invoicing process.

👉Learn more about What is e-invoicing in our detailed blog post.

What are the benefits of an e-Invoicing system in India?

There are a number of perceived benefits, including:

1. A standard format is adopted for all B2B invoices, thereby ensuring interoperability among businesses within India as well as across the world; The standard format is referred to as the e-invoice schema and has been notified in India as Form GST INV-1;
2. A  near real-time reporting and authentication of each invoice by the central government, thereby curbing tax evasion, mitigating fraudulent practices, especially the menace of fake invoices in GST; and
3. The automation of GST returns filing where specific fields will be pre-populated while filing GST returns and creating e-way bills, thus avoiding discrepancies during reconciliations and audits.

How did e-invoicing evolve in India?

E-invoicing has been implemented in a phased manner, with each phase based on the annual aggregate turnover of businesses.The first phase of e-invoicing was first introduced on October 1, 2020, for taxpayers with an aggregate turnover exceeding ₹500 crores (approximately 50m USD). Following a series of extensions, e-invoicing was extended to businesses with lower aggregate turnovers; for example, it captured businesses with turnovers exceeding ₹10 crores (approximately 10m USD) on October 1, 2022. Recently, the Ministry of Finance, through Notification No. 10/2023, has reduced the threshold for e-invoicing to Rs. 5 Crore, requiring GST-registered individuals with turnover above this limit in any financial year from 2017-18 to generate e-invoices. This is applicable from August 1, 2023, for all tax invoices and debit/credit notes issued to registered persons, including export transactions.

👉Learn more about the advisory extending e-invoicing to businesses with turnovers exceeding ₹5 crores.

What is aggregate turnover, and how is it computed?

For readers based outside of India, an aggregate turnover is essentially a threshold calculation which determines if a taxpayer falls within the scope of the e-invoicing regime or not. As only companies with a certain level of aggregate turnover fall within the scope of India’s e-invoicing obligations, a thorough understanding of what “aggregate turnover” means and how it is computed is essential for a person looking to comply with e-invoicing rules in India.

In more technical terms, Aggregate Turnover means the aggregate value of all taxable supplies, exempt supplies, exports of goods or services or both and inter-State supplies affected by the taxpayers having the same Permanent Account Number (PAN), i.e. it includes all the GSTINs associated with a single PAN across India.

Aggregate turnover, however, explicitly excludes the value of inward supplies on which reverse charge is applicable.

Aggregate Turnover Thresholds for E-invoicing

The taxpayers must comply with e-invoicing if their aggregate turnover exceeds the specified limit in any financial year from 2017-18 to 2021-22.

Example 1

RRR Private Limited had the following aggregate turnovers:

Q: Does RRR Pvt Ltd fall in the scope of Indian e-invoicing? If yes, then from which Financial Year (FY)?

A: Yes, RRR Pvt Ltd fell in the scope of e-invoicing from April 1, 2022.

Irrespective of the current year’s aggregate turnover, RRR Pvt Ltd crossed the ₹ 20 crore turnover threshold in FY 2019-20. E-invoicing has been mandatory for taxpayers with an aggregate turnover exceeding ₹ 20 crore from April 1 2022. Once e-invoicing is applicable, it does not change even if the aggregate turnover falls below the threshold in the following years.

Example 2

KGF Limited commenced business in FY 2019-20 and earned aggregate turnover as follows:

Q: Does KGF Ltd fall in the scope of Indian e-invoicing? If yes, then from which FY?

A: Yes, KGF Limited fell in the scope of e-invoicing from October 1, 2022.

KGF Limited should comply with e-Invoicing from October 1, 2022, since its previous year’s annual turnover (FY 2021-22) exceeds Rs.10 crore. E-invoicing is applicable for aggregate turnover exceeding ₹ 10 crore from October 1 2022.

Example 3

DON Limited commenced business in FY 2020-21 and earned aggregate turnover as follows:

Q: Does DON Limited fall in the scope of Indian e-invoicing? If yes then from which FY?

A: Yes, DON Limited will fall in the scope of e-invoicing from August 1,  2023.

DON Limited’s aggregate turnover has exceeded ₹ 5 crores in the financial year 2020-21. As per the recent notification, taxpayers with ₹ 5 Crores or more turnover in any financial year from 2017-18 shall issue e-invoices w.e.f 1st August 2023.

Example 4

PK Limited commenced business in FY 2020-21 and earned aggregate turnover as follows:

Q: Does PK Limited fall in scope of Indian e-invoicing? If yes then from which FY?

A: No, PK Limited will not fall in the scope of e-invoicing as it has not crossed the threshold of ₹ 5 crores in any of the previous financial years.

Scope of E-invoicing

Applicable Transactions and Documents

Which categories of taxpayers are exempted from e-invoicing in India?

The following categories of taxpayer are exempt from the e-invoicing rules in India:

1. An insurer or a banking company, or a financial institution, including a Non-Banking Financial Corporation;
2. A GTA (Goods Transport Agency);
3. A registered person supplying passenger transportation services;
4. A registered person providing services by way of admission to the exhibition of cinematographic films in multiplex services;
5. Supplies made from an SEZ (Special Economic Zone) unit with or without payment; Business units located in the Special Economic Zones are EXEMPTED from e-Invoice generation for the supplies made FROM the SEZ units.
6. A government department and Local authority;

What are the unique features of an e-invoice in India?

Here are some of the unique features of an Indian e-invoice:

• Invoice Reference Number (IRN): the IRN is a unique 64-character number (a “hash”) generated by the invoice registration portal (IRP) using a hash generation algorithm. The IRN is based on the computation of the hash of the GSTIN of the supplier of the document (invoice, debit note and credit note), year, document type and document number.
• Signed QR code: The IRP will generate a QR code containing the unique IRN (hash) along with some essential particulars of the invoice, including a digital signature, so that an Offline App can verify it. The signed QR code contains information that can be easily verified by both taxpayers and tax officials.
  • The QR code consists of the following e-invoice parameters:
    • GSTIN of Supplier
    • GSTIN of Recipient
    • Invoice number as given by Supplier
    • Date of generation of invoice
    • Invoice value (taxable value and gross tax)
    • The number of line items.
    • HSN Code of the main item (the line item having the highest taxable value)
    • Unique Invoice Reference Number (IRN)
    • Date of generation of IRN
• Real-time reporting: The information contained in an e-invoice gets transferred to both the GST portal and the e-way bill portal in real-time. This feature eliminates the requirement of manual data entry while filing GSTR-1 returns and generating part-A of the e-way bills. Real-time reporting has gained prominence with the introduction of e-invoicing.
• E-invoicing is the most crucial step in the direction of real-time reporting. We will discuss this further in the ensuing paragraphs.

What is real-time reporting in the context of e-invoicing?

Real-time reporting refers to the transmission of data contained in a business transaction to the tax authorities portal in real-time, i.e. as and when they occur. The advent of e-invoicing has led to this concept of real-time reporting. Real-time reporting enables taxpayers to seamlessly transmit invoice data, including details such as taxable value, tax rates, and GSTIN, directly to the GST portal. This eliminates manual filing and provides tax authorities with up-to-date and accurate information.

Real-time reporting can enhance transparency, reduce the risk of non-compliance, and enable tax authorities to monitor transactions in real-time, fostering a more efficient and effective tax administration system in India. Conversely, for some businesses, both e-invoicing and real-time reporting can be a major administrative challenge, sucking up resources at the cost of other initiatives which is why it is crucial to have a good understanding of the requirements and an appreciation for the time and resources each would take to implement.

What are the time limits for e-invoice generation  in India?

Although there were no prescribed time limits set by the GST law for e-invoice generation. However, inline with an advisory note issued by the GSTN, businesses with an aggregate turnover geater than or equal to ₹ 100 crore must generate e-invoices for tax invoices and credit-debit notes within thirty days of the invoice date. The Goods and Services Tax Network (GSTN) issued an advisory, imposing a 30-day time limit for reporting invoices on the Invoice Registration Portals (IRPs). Earlier the GSTN had planned to impose a 7 day time limit for reporting e-invoices on the IRP portals (Refer the old update here) which is now 30days as per the latest advisory.

For other taxpayers (less than aggregate turnover ₹ 100 crore) there is no specified time limit for generating e-invoices however, it is recommended to generate e-invoices approximately a week before filing GST returns that details of e-invoices can be pre-populated.

It should be noted that the 30 days time limit to report e-invoices on the Invoice Registration Portals (IRPs) has been postponed by 3 months from the originally planned date of May 1, 2023. The precise date of the implementation should be announced soon (as per the latest advisory of the GSTN, the new time limit of 30 days is expected to be implemented from November 1, 2023.)

👉 Learn about the latest advisory note issued by GSTN dated September 13, 2023 in this blog: India Imposes a New Time Limit to Report Invoices in the Invoice Registration Portals
👉Learn more about the advisory note issued by GSTN imposing a time limit for e-invoice generation in Fonoa’s blog post.

What is the impact of seven days time limit on real-time reporting?

The implementation of a seven-day time limit has had a significant impact on real-time reporting in the context of e-invoice generation and GST returns. Previously, when there was no specified time limit, the auto-population of e-invoice details into the GST returns was not comprehensive. This meant that not all transactions would be included before the due date for filing returns in a given month.

However, with the introduction of the time limit for e-invoice generation, GST returns are now auto-populated on a near real-time basis. This means that the e-invoice details are automatically transferred and reflected in the GST returns within a short period of time. As a result, the taxpayers can expect their GST returns to be updated promptly and accurately.

Additionally, here is a fun fact: e-invoices reported on Invoice Registration Portal partners (IRPs) are auto-populated in GST returns on an hourly basis. This frequent and timely updating further enhances the real-time nature of the reporting process.

One of the advantages of this time limit is that taxpayers are provided with sufficient time (within the seven-day limit) to reconcile the input tax credits in their electronic credit ledger. They can review and verify the credits associated with their transactions, knowing that the flow of these credits into the ledger will occur within the designated time frame. This allows for a smoother and more efficient reconciliation process for taxpayers.

What is the potential impact of imposing time limit for e-invoice generation?

The new requirement of generating e-invoices within seven days impacts numerous large Indian enterprises, compelling them to make significant changes to their ERP and billing processes and follow specific steps to be compliant with the new norm:

• Taxpayers with an annual aggreate turnover greater than or equal to INR 100 crores should have a reliable e-invoicing system to avoid non-compliance, which may lead to penalties, fines, and loss of Input Tax Credits (ITC).
• Taxpayers should check with their vendors, suppliers, and e-commerce participants liable for issuing e-invoices and follow up to ensure they issue e-invoices within the time limit to avoid disputes related to ITC denial.
• Taxpayers may wish to review and update their standard contracts and the obligations related to invoicing, so as to clearly identify the course of action should invoices be issued late.

What is the process of generating an e-invoice?

To create e-invoices, the taxpayer's ERP system should be configured per the mandatory parameters specified by CBIC (Central Board of Indirect Taxes and Customs) notified as e-invoice schema.

What is an e-invoice schema? What are the mandatory fields as per the e-invoice schema?

The e-invoice schema is the standard format that defines the data elements and their arrangement within an electronic invoice. E-invoice schema is notified as Form INV 1. The latest e-invoice format comprises 12 sections and six annexures, totalling 138 fields. Of these sections, five sections are mandatory, including basic details, supplier and recipient information, invoice item details, and document total.

The following are the mandatory fields of an e-invoice schema:

What are the steps in generating an e-invoice?

The process of generating an e-invoice in India involves functional schema mapping, IRN generation through API integration or GSP integration, uploading invoice details to the IRP, validation of invoice information, digital signature and QR code generation, delivery of e-invoice back to the supplier, and reporting in GST returns and e-way bill if necessary.

These steps are explained in more detail below.

[1] Functional schema mapping

Functional schema mapping is the first essential step where the taxpayer's ERP system is aligned with the e-invoice schema, ensuring that it includes the mandatory parameters specified by the GSTN.

[2] IRN Generation

Next, for IRN (Invoice Reference Number) generation, taxpayers have two primary options:

• Direct API integration via Invoice registration portal partners: The taxpayer's computer system's IP address can be whitelisted on the e-invoice portal, allowing for a direct API integration. This integration is facilitated through Invoice Registration Portal partners, enabling seamless IRN generation.
  • The GSTN has partnered with four private industry players to establish additional e-invoice registration portals (IRPs). These additional IRPs are intended to enhance e-invoice registration capabilities and broaden the participation of businesses in generating B2B e-invoices. Here is the list of IRPs.
• Integration through GST Suvidha Provider (GSP): Alternatively, the taxpayer's ERP system can be integrated with the GST Suvidha Provider (GSP). GSPs are authorized third-party service providers that assist taxpayers in complying with GST regulations. They offer technology-based solutions and services for various GST-related processes, including e-invoicing, GST registration, return filing, invoice generation, reconciliation, and compliance management.
  • Here is a link where you can find a list of GSPs.

[3] Invoice Upload

Upon selecting one of the above options, taxpayers proceed to upload the invoice details, including mandatory fields, onto the Invoice Registration Portal (IRP) using a JSON file.Taxpayers may chooseto upload either through IRPs directly or through GSPs.

[4] IRP Validation Checks

The IRP performs validation checks on the JSON file, ensuring accuracy and avoiding duplication.

[5] Digital Signature and QR Code Generation

After validation, the IRP generates an Invoice Reference Number (IRN) or hash, digitally signs the invoice, and creates a QR code within the output JSON for the supplier.

[6] Delivery of e-invoice back to the supplier

The signed JSON and the QR code are then sent back to the supplier by the IRP. However, at present, the IRP does not send any notification to the buyer regarding the generated e-invoice.

[7] Delivery of e-invoice back to the buyer

The supplier must deliver an e-invoice to the buyer. IRP does not send anything to the buyer notifying that the e-invoice has been generated as of now.

[8] Reporting in GST returns and e-way bill:

The authenticated invoice payload is reported to the GST portal for GST returns, allowing relevant details to be forwarded to the e-way bill portal if applicable. This ensures that the taxpayer's GST returns are auto-filled for the corresponding tax period, helping determine the tax liability.

👉Learn more about India e-invoicing in Fonoa’s country guides.

What are the consequences of not following the e-invoicing provisions in India?

The repercussions of failing to adhere to the e-invoicing rules are as follows:

No e-invoice means no invoice: According to Rule 48(4), registered persons of a certain class are required to issue e-invoices. Rule 48(5) further states that if an e-invoice is not generated, even when it is mandatory, the issued normal invoice becomes invalid. Therefore, the failure to generate an Invoice Reference Number (IRN) is equivalent to not issuing an invoice at all. This results in the transaction being considered fraudulent, leading to penalties under section 122 of the CGST Act, 2017. The exact penalties are discussed below

Restriction on input tax credits: A valid tax invoice with Invoice Registration Number is required for claiming Input tax credit. Without a proper tax invoice with an IRN, the buyer has the option to refuse delivery of the products and/or payment, which may affect the buyer’s ability to claim ITC. Furthermore, without IRN, invoice data will not be auto-populated to GSTR-1 of the supplier’s and buyer’s GSTR-2A. In this case, the buyer cannot claim ITC for the tax already paid by the supplier.

Affects e-way bill compliance: An e-way bill cannot be created for the movement of goods until it has a valid tax invoice with IRN generated by the Invoice Registration Portal. This implies that the movement of goods would be restricted if the e-invoice is not generated.

Reputational Damage: Non-compliance with e-invoicing has a huge impact on the reputation of the business and can lead to delayed payments, refusal of deliveries and loss of business opportunities. It can attract negative attention from tax authorities and other regulatory bodies, leading to tax scrutiny, penalties, and legal consequences.

What are the penalties for non-compliance with e-invoicing provisions?

According to Rule 48(5) of the CGST Act 2017, the following two penalties can be levied in the event of non-compliance:

Bearing the far reaching consequences of non-compliance with e-invoicing in India, it is  crucial for taxpayers especially those newly added (with effect from August, 2023) to familiarize themselves with e-invoicing and promptly upgrade their systems to comply with the requirements.

👉Learn more about the advisory extending e-invoicing to businesses with turnovers exceeding ₹5 crores.

Resources on global e-invoicing including India

Fonoa has your back if you want to learn more about e-invoicing and (near) real-time reporting in India and many other countries worldwide! Check out the following resources:

• India E-invoicing and Digital Reporting Guide
• Different Forms Of E-invoicing
• What Is E-Invoicing And What Is Not?

How can Fonoa help?

Fonoa provides a comprehensive solution for global indirect tax compliance, including in India. With Fonoa, you can streamline and manage e-invoicing compliance worldwide through a single, user-friendly platform. Key features of Fonoa’s platform include:

1. Centralized Global Invoicing Compliance Management: You can handle your global invoicing compliance obligations from one platform. Whether it's issuing and sending e-invoices to tax authorities, reporting invoice data, or complying with fiscalization (OCR) rules, Fonoa has you covered.
2. Simplified Integration: Fonoa offers a single connection (API) to manage all your global invoicing compliance requirements. This eliminates the need for multiple integrations and simplifies the management process.
3. Data Cleaning and Error Reduction: Fonoa's platform automatically cleans your data, reducing errors and minimizing manual work. This saves you time and money while ensuring accuracy in your compliance processes.
4. Validation Mechanisms: Fonoa provides robust validation mechanisms to ensure reporting accuracy, data completeness, and compliance. You have full control over your compliance activities and can rely on Fonoa's validation tools to meet regulatory requirements.
5. Reliable Reporting and Retry Mechanisms: Transactions are reported to the relevant authorities or queued for internal investigation with Fonoa's reliable retry mechanisms. This ensures that your compliance obligations are met without any disruptions.
6. Comprehensive Visibility: Fonoa offers detailed dashboards that provide full visibility into your compliance activities. You can filter criteria, analyze granular transaction data, and easily import/export information, giving you complete control and insight into your compliance processes.

By leveraging Fonoa's platform, you can efficiently manage your global indirect tax compliance, simplify processes, minimize errors, and gain valuable insights into your compliance activities.

Contact us for more information.

Additional Resources:

• India GST Guide for Global Business - Rates & Compliance Requirements
• India GST on Digital Services
• India E-invoicing & Digital Reporting