Dummy 1 - News - Copy |

E-invoicing impact on operations & GST compliance of small businesses

Not long ago, On 1st August,2022, Ministry of Finance (Department of Revenue) announced the fifth phase of e-invoicing by shifting the threshold of 20 crore rupees turnover to 10 crore rupees turnover with effect from 1st October, 2022. Which makes it mandatory for all the B2B, SEZ, B2G and other (excluding B2C) transactions to be prepared under e-invoicing, where the turnover of the entity is more than 10 crores rupees under sub-rule (4) of rule 48 of the Central Goods and Services Tax Rules, 2017.
This brings a drastic impact on the operations of small businesses as the bar has been kept low to bring the huge chunk of small businesses in this range. Though there were talks about the further decline to 5 crore rupees turnover, businesses have to prepare e-invoice from 1st January,2023. However, on 26th December 2022, the CBIC clarified that it won’t begin from 1st January 2023. Before we go any further, let’s grasp how e-invoicing works so that we can discuss how it will impact business as usual and why the government needs to adopt it.
Small Business

What is e-invoicing?

e-Invoice is a system in which B2B invoices are electronically validated by GSTN before being used on the public GST portal. Every invoice issued under the electronic invoicing system will receive an Invoice Reference number (IRN) from the Invoice Registration Portal (IRP), which will be run by the GST Network (GSTN).
So, the invoice you prepare on the computer or by any electric form is an e-invoice? No. What if you prepare the invoice on the government site, will it be e-invoice then? No.
E-invoice is not something you prepare with the help of electronic medium, it is more of a system which lets you generate a unique IRN by sending request to National Informatics Centre (NIC) with all the necessary details (like invoice number, date of transaction, quantity, etc.) which allows you to track your invoice in real-time, generate e-way bill simultaneously, helps you to avail ITC (Input Tax Credit) faster with many more benefits to your business.
– Invoice Reference number (IRN) – It is a 64-character unique number (also known as hash) generated by the Invoice Registration Portal (IRP) using a hash generation algorithm, under the e-invoicing system.
– E-way bill – According to the government’s mandate under Section 68 of the Goods and Services Tax Act read with Rule 138 of the rules framed thereunder, an e-way bill is a document that must be carried by the person in charge of the conveyance transporting any consignment of goods with a value greater than fifty thousand rupees.
– Input Tax Credit (ITC) – ITC is a mechanism to avoid cascading of taxes. Cascading of taxes, in simple language, is ‘tax on tax’.
To know more about the:
  • Process of generating e-invoicing,
  • Documents covered under e-Invoice,
  • Supplies covered under e-invoice,
  • Entities/sectors for which e-Invoicing is not applicable/ exempt, >>  Click Here.

What are the consequences of non-compliance with e-invoicing?

  1. Penalty of non-generation of e-invoice is 100% of the tax due or Rs.10000, whichever is less for every invoice.
  2. Penalty for incorrect invoicing is Rs.25000 per invoice.
  3. Without a valid IRN, it will not be possible to generate an E-Way Bill. This can result in further penalties for E-way bills.
  4. Monetary penalty of 100% of the tax due or Rs.10000, whichever is less.
  5. Detention and seizure of the vehicle that was found to be transporting the goods without an e-way bill.
  6. Denial of ITC claims and holding of payments.
  7. According to GST rules, any invoice submitted by the relevant taxpayer that lacks the IRN is deemed void.

What are the platforms for preparing e-invoices?

Any reasonable business will not take the chances of bearing above penalties and losing public image. So, even the small companies are rushing to meet the deadlines before 1st April. Businesses have access to a free Excel-based solution from the government to prepare e-invoices. However, this procedure is manual, time-consuming, and potentially error-prone.
Small businesses can also create electronic invoices with the help of an ERP integration mechanism. Here, the e-invoice site is integrated with the taxpayer’s ERP or accounting system to enable automated generation and cancellation of e-invoices in real-time. E-invoice generation is made lightning-fast, smooth, and nearly error-free with the aid of ERP integration. Additionally, some software integrates e-invoicing services with other accounting solutions.

How e-invoicing will impact small businesses?

On October 1, 2020, the GST e-Invoicing system went into effect for taxpayers having an aggregate turnover of more than Rs. 500 crores, which includes 3984 firms. The new range of Rs. 100 crores as on January 1st, 2021, has been set up which encompasses 15704 entities. And most recently, on August 1, 2022, it was lowered to Rs. 10 crores, which has resulted in a considerable increase in the number of businesses (i.e., 71570 companies) participating in e-invoicing. This is 18 times the number of businesses involved in the implementation’s early stages.

Source: Fundoodata

From the numbers above, we can easily draw the picture which is building the grassroot level of transparency with the help of e-invoicing in the small businesses.
When auto-population is used by these organisations, the GSTR-1 filing procedure is made simpler because several extra steps in the invoicing process are eliminated. Errors and typos are decreased by more automation and less manual input. There is no need to be concerned about your invoice getting misplaced in the mail.
When using e-invoicing software, small businesses can track when an invoice has been delivered, read, and paid. The invoice will have been delivered and received for sure. You may also be able to see when the consumer has viewed the invoice, depending on the service provider. This can make it simple to maintain a track with the aid of a QR code.
The main goal of lowering the e-invoice turnover cap is to detect and prevent tax fraud through compliance improvement. The likelihood of tax evasion is decreased since more taxpayers than in any prior e-invoicing phases fall into the Rs 10 crore and above annual turnover band. Additionally, the larger volume of transactions that these small enterprises experience reveal new compliance challenges.
Eventually, it helps the government as well as the small businesses to run the system smoothly and hassle free. It further increases transparency and reduces human error.
Scroll to Top