Widening the net: How e-invoicing is boosting GST compliance

The government’s move to introduce e-invoicing as a mandatory part of the GST landscape has improved compliance and boosted GST collections while also transforming the transactional landscape of India’s commercial economy into a digital and transparent system.


This was not the case when with the introduction of GST in July 2017, the government’s hopes of a uniform nationwide law to boost compliance and enhance tax collections, were repeatedly belied. Revenue collections in the first 3 years of GST were nowhere near expected lines with widespread non-compliance and non-filing of GST returns by a significant number of taxpayers. GST non-compliance was on the rise and increasing cases of fraudulent invoices to avail input tax credit (ITC), were coming to light.

There was the dire need to course correct the GST law and the government seized this opportunity to introduce e-invoicing in a phased manner. Simply put, e-invoicing ensures that a trade invoice is identified by a unique identification number (termed as invoice reference number) which is generated by the Invoice Registration portal of the GSTN. This invoice registration number is required to be encrypted in a Quick Response code (QR) on the invoice. The QR code contains, apart from the IRN, the GST registration numbers of the supplier and recipient, date of invoice generation, the invoice number and the invoice value. This unique matrix bar code is machine readable and can easily verify the invoice by even a cellphone. It permits interoperability as e-invoices are generated in a standardised format and thus can be read by different sofware.

It is no surprise that since November 2020, GST collections have been on the rise and crossed the Rs 1 lakh crore benchmark - e-invoicing was introduced in Oct 2020 for businesses with turnover over Rs 500 crore and extended to those with turnover over Rs 100 crore from Jan 2021; and e-invoicing is now mandatory for businesses with turnover above Rs 50 crore, from 1 April 2021.

This staggered approach has ensured that both GSTN and businesses are prepared for this major transformation in the GST compliance construct. E-invoicing is already running successfully in many countries across the globe, and with this measure, India will also be following the contemporary global standard of invoice format used in business transactions. Further, it is expected that by end of this year, e-invoicing will be extended and made mandatory for all GST registered businesses, except for B2C and GST exempted transactions. Financial institutions, goods and passenger transport and SEZ units also are outside the ambit of e-invoicing.

This transmission, reception, and processing of digital transactional documents by way of an e-invoice between suppliers and buyers, proffers several advantages over the traditional system of physical invoicing. Electronic invoice generation reduces data input errors, improves account reconciliation, provides for accurate ITC claims and shortened payment cycles, and results in enhanced customer relationships. E-invoicing takes away the advantage of spontaneous physical invoicing particularly for small business and also requires additional spend on automation.

For the government, e-invoicing enables real time tracking of invoices and an automated e-trail, reducing mismatches of input tax credit, leading to a unified and automated system of GST filing. Backed by increased coverage and success of e-invoicing, the Finance Minister has been on record to have agreed to eliminate the requirement of e-way bills (road permit or transportation document) in the near future. Most importantly, e-invoicing has, to a great extent, killed two birds with one stone- while reducing the burden of business of matching invoices and thus availing correct ITC in a timely manner, it has simultaneously ensured that government does not suffer losses on account of unscrupulous practices of fake and fraudulent tax invoices (it is no secret that the European Unionloses about 30 billion Euro per annum due to incorrect ITC availment). Additionally, the automated population of e-invoices in the GST returns of sellers and buyers has vastly reduced the burden of GST compliance for trade. Its true success would, however, lie in the government ensuring that there are no technology glitches in the e-invoicing regime and that it continues to expend on upping its technology advancement to transform GST compliance into an auto regulated system.

Underscoring government’s efforts to promote a digital economy, e-invoicing provides for retention of records in a cloud environment and thus supports a clean environment as printed invoices can literally be done away. Legal changes can be expected on that front soon.

(The writer is Senior Director with Deloitte India)

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GST Audit for FY 2019-20: Takeaways for Filing GST Annual Return

Are you a businessman having a turnover of more than 2 crores for FY 2019-20? If yes then here are the takeaways for filing GST Annual Return. Taxpayers who have an annual turnover of more than 2 crores in a year have to fill GSTR 9C form along with reconciliation statements and certification of audit in every financial year.

GSTR 9C form is an annual audit form and "audit under GST" includes inspection of records, returns and other related documents that are maintained by a person registered under GST Act. This entire mechanism is followed to ensure that correct information is disclosed with respect to turnover, input tax credit availed, taxes paid, refund claimed and assessment of the other related compliances as per GST Act that is to be verified by an authorization expert.

The GST regime is considered a trust-based taxation mechanism wherein a taxpayer has to undertake a self-assessment of his tax liability, file returns. and pay taxes. However, apparently, it seems that all taxpayers are honest. But this is not true and consequently, a "robust audit mechanism" is necessary to implement. A variety of steps are required to be taken by the government for apt implementation of the GST regime and audit is one amongst many of these measures.

Having said that, The Union Finance Minister Nirmala Sitharaman in Budget 2021 has proposed to delete the requirement of giving the GSTR audit report in the form GSTR-9C.

In consequence, this time, the Financial Year 2019-20 is the last year of GST Audit. And an individual ought to rectify all the mistakes that have been done in previous years.

1. Compare GSTR-3B with GSTR-1 before the filing of GSTR-9

It is crucial for every taxpayer to "compare GSTR-3B with GSTR-1" for ensuring that there is the "absence of gaps or variations". The existence of "Gaps or Variations" would, in turn, lead to

1. Unwanted issues/problems

2. the issuance of demand notices from tax authorities

Aforesaid issues would ultimately delay/obstruct "the precise filing of the annual returns".

2. Payment of Tax in Cash as per "Reverse-Charge Basis".

In section 49(4) of the CGST Act 2017, "Input Tax Credit" (ITC) can be utilized for payment of output tax only. Consequently, under Reverse Charge Basis (RCM), Tax has to be paid in cash only and benefits of ITC cannot be availed. And so, the supplier must refer in his/her tax invoice whether the tax paid is a reverse charge or not.

3. Interest charged in case of Untimely/Late Payment of GST

It is the duty of the taxpayer to pay GST timely. In case of late payment of GST, interest shall have to be paid. Moreover, instructions in notices issued by tax authorities have to be strictly adhered to. And if excess ITC is claimed, the rate of interest to be paid shall be 24% on the "tax amount" that is in excess.

4. Reversal of Input Tax Credit

The Government has inserted section 16(2) and Rule 37 in the aforesaid GST law. As per section 16(2) and Rule 37, non-payment of consideration within 180 days shall lead to the reversal of ITC.

5. E-way Bill

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In case of transportation of goods from one place to another, the transporter should possess an e-way bill that must tally with the invoices issued.

6. "GST Audit Turnover" in tune with "Income Tax Turnover"

As per the latest update, both the departments - Department of Income Tax and Department of GST- shall exchange relevant information with each other. Consequently, an individual needs to be careful while reporting turnover under Income Tax and GST.

7. GSTIN wise Audit

In case the PAN-based aggregate turnover exceeds Rs 2 crores, every registered GSTIN (having the same PAN) shall have to

1. Fill GSTR-9C and

2. His accounts shall be audited

If both the branches possess the same GSTIN, then for determining the threshold limit, the stock transfers shall not be included in aggregate turnover. And

If both the branches have different GSTIN, then for determining the threshold limit, the stock transfers shall be included in aggregate turnover.

8. Categorisation of ITC that is availed

The ITC should have to be categorised under 2 headings: Purchases and different types of expenses like Capital goods, Bank charges, freight and so on.

9. Stock Transfer

The amount of stock that is disclosed in the books of accounts and the GST annual return should be the same. However, Stock transfer outside the boundary of the state is assumed as supply under GST.

10. Checking Inwards Supply and Outwards Supply

It is necessary for the taxpayer to assure that the apt rate is levied on both the Inwards Supply and Outwards Supply in addition to considering exempted supply.

The author Amit Gupta, is MD of SAG Infotech.