Government mandates e-Invoice Mechanism for B2B Companies: Everything You Need To Know

Finance secretary Bhushan Pandey, recently announced that e-invoice shall apply for B2B transactions for all the companies registered under GST from 1st April 2021. Earlier via Notification No. ‘88/2020 – Central tax’ E-invoicing was enabled from 1st January 2021 for registered taxpayers whose turnover exceeds INR 100 crores in any preceding financial year from 2017-18 onwards.

The key benefits of e-invoicing which enable a fully automated flow directly from one company’s ERP system to another will make minimum invoice mismatches during reconciliation.

Some of the highlights on the e-invoice Mechanism introduced:

• E-invoice is an invoice that is digitally signed by the Invoice Registration Portal (designated authorities) and contains a unique Invoice Registration Number (hash) and a QR code.

• GST e-invoice System is a path-breaking initiative that is going to revolutionize the way businesses interact with each other. It will be yet another milestone in India’s journey in enhancing the ease of doing business.

• ‘E-invoicing’ essentially involves reporting details of specified GST documents to a Government-notified portal and obtaining a reference number.

Advantages

• E-invoice has many advantages for businesses such as standardization, interoperability, auto-population of invoice details into GST return and other forms (like an e-way bill), reduction in processing costs, reduction in disputes, improvement in payment cycles, improving overall business efficiency.

• Huge advancements in technology sophistication and increased penetration of the internet along with the availability of computer systems.

Applicable to whom and when?

• Taxpayers with aggregate turnover up to INR 100 Crs.–Likely to be mandatory in case of B2B transactions (includes exports) wef1 April 2021

• Taxpayers with aggregate turnover exceeding INR 100 Crs.–Mandatory in case of B2B transactions (includes exports) w.e.f. 1st January 2021

• Taxpayers with aggregate turnover exceeding INR 500 Crs.–Mandatory in case of B2B transactions (includes exports) w.e.f. 1st October 2020

• Taxpayers with aggregate turnover exceeding INR 500 Crs.–Mandatory in case of B2C transactions (generation & display of dynamic QR code)

Process of E-Invoice

• Taxpayers generating their GST invoices shall need to report the same to “Invoice Registration Portal” (IRP).

• Upon reporting, the IRP returns a signed e-invoice with a unique “Invoice Reference Number” (IRN) along with a QR code.

• The GST invoice with the QR code & IRN can be issued to the customer /recipients.

Exemption from e-invoicing

• Special Economic Zone Units.

• An insurer or a banking company or a

• A Financial institution, including a non-banking financial company.

• Goods transport agency supplying services about the transportation of goods by road in a goods carriage.

• Suppliers of passenger transportation service.

• Suppliers of services by way of admission to an exhibition of cinematograph films on a multiplex screen.

It has been clarified

• The exemption from e-invoicing is w.r.t. entity and not w.r.t. nature of supply/ transaction.

• Exemption from e-invoice provisions is for SEZ units and accordingly, SEZ developers cover within the ambit of E-invoice provisions.

E-invoice Validations on the data of taxpayers?

• Document number should not be starting with 0

• Supplier should ensure that the unique invoice number is being generated for the financial year for each invoice, in his ERP/manual system.

• The financial year derives from the date of the invoice.

• The financial year starts from 1st April and ends on 31st March.

For GST

• Recipient GSTIN should be registered and active.

• In case of transaction of direct export, recipient GSTIN has to be URP and state code has to be 96, PIN code should be 999999, POS should be 96.

• First, two digits of the supplier /recipient GSTIN should match with the state code passed in the supplier/ recipient details accordingly except if supply type is exported wherein recipient state code will be 96.

• PIN codes validate against the States they belong to.

• If a “shipping party” is provided, then the transaction is considered as “bill to ship to”.

• The state code of the supplier GSTIN and POS will decide whether the supply type is interstate or intrastate. That is if the state code of supplier and POS is the same, then it is intra-state, otherwise, it is interstate.

In the case of Exports and SEZ

• In the case of Exports and SEZ, the supply is always inter-state.

• The Serial number of the item is verified for duplicate values.

• Each item needs to have a valid HSN code with at least 4 digits.

• HSN code should be valid as per the GST master.

• If service is selected, then the HSN codes must belong to services.

• Each item should have a valid unit quantity code (UQC) as per the master codes, in the case of goods.

• Quantity and unit quantity code is mandatory for goods and optional for services.

• Tax rates are being validated and only the allowed tax rates will be accepted, except in the case of credit note and debit note. For credit note and debit note, any value can pass for tax rate.

• In case of an export transaction, IGST tax rate and value have to pass.

• In case the recipient is SEZ unit, then IGST tax rate and value need passing irrespective of the state of the recipient.

• Maximum number of items in each invoice should not exceed more than 1,000 items and a minimum of 1 item should be available.