Technology for MSMEs: Extending scope of e-invoicing gradually has provided the Indian government with some much-needed transparency to curb tax evasion and ITC fraud while simultaneously aiding the ease of doing business.
By Prashant Ganti
Technology for MSMEs: The e-invoicing system for B2B transactions was first made mandatory for businesses with a turnover of over Rs 500 crore in October 2020. In the second phase, it was extended to businesses with a turnover of over Rs.100 crore from January 2021, and most recently, it was mandated for firms with a turnover of more than Rs 20 crore from April 1, 2022. Primarily, e-invoicing has helped standardise the format of digital invoices issued for goods and services. Extending its scope gradually has provided the Indian government with some much-needed transparency to curb tax evasion and ITC fraud while simultaneously aiding the ease of doing business.
Impact of e-invoicing
In the past, no proof was provided to the government when business transactions between vendors and customers were completed. Under the e-invoicing system, the government can monitor B2B transactions where GST is applicable and prevent invoices without an IRN from claiming ITC. In addition, since e-invoicing automates the return-filing process, taxpayers no longer have to do manual calculations while filing GSTR. This curtails the risk of errors or fraudulent invoices, curbs tax evasion, and fixes revenue leakage for SMBs. For instance, the vast majority of Latin American states have mandated the use of e-invoicing as a fiscal control system. The Latin American e-invoicing model is the most advanced in its field and has notably contributed to reducing tax evasion.
However, the government isn’t the sole benefactor here. Sizeable benefits are being reaped by SMBs as well. With invoices being generated, authenticated, and tracked online in real-time, businesses can save time that would otherwise be spent manually retrieving data to process in bulk at the end of each month. Once invoices are uploaded to the common portal, they are pushed to the GSTN and e-way bill portals for auto-population of data, and seamless generation of e-way bills and GST returns.
The e-invoicing system has also helped increase interoperability between businesses—an e-invoice generated by a vendor from one application can be easily read by their customer using any other application. This significantly simplifies the process of vendor onboarding. It also ensures timely payments by the supplier, which in turn eases the recipient’s access to ITC.
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Apart from building customer trust and loyalty, the validation of e-invoices by the government can also be leveraged by businesses to acquire instant bank loans without having to undergo an intensive validation process. On the whole, the full-fledged implementation of e-invoicing is expected to boost the efficiency of GST and yield outcomes favourable to business owners as well as the Indian government.
The third phase has necessitated SMBs to embrace e-invoicing software. Since this is unknown territory for many businesses, they are seeking a user-friendly application that integrates smoothly with the government portal and makes e-invoicing a straightforward process.
Online accounting solutions help taxpayers quickly create error-free invoices, credit notes, and debit notes according to the e-invoicing schema. These solutions help mid-size businesses with multiple branches generate multiple e-invoices and bulk push them to the IRP. The invoices are directly uploaded to the IRP, validated, and signed.
Accounting software verifies the invoice data to flag violations, missing mandatory fields, and incorrect details (such as GSTIN errors) to avoid failed invoice uploads. Once verified, the invoice details from the IRP are automatically synced to the GSTN and auto-populated in the business’ tax returns without the need for manual intervention.
It is advantageous for businesses to invest in a powerful online accounting application that is compliant with design. This will help businesses keep up with any regulations that may be introduced in the future while streamlining financial operations.
Prashant Ganti is Head of Products – Tax, Accounting, & Payroll at Zoho. Views expressed are the author’s own.