The Goods and Services Tax (GST) was introduced in 2017 to combat the cascading effect of the taxes from the previous tax structure.
To mitigate the confusion around transactions, you need to have a reporting structure in place that records the transaction details from the beginning of the transaction to the end.
Businesses and service providers need to follow a GST invoice based reporting system that records the entire information on the transactions from the beginning. Here is an article on GST invoices explaining the basics.
The Importance of a GST Invoice
A GST invoice is generally issued by the supplier notifying the buyer of the obligation to make the required payments.
A tax invoice helps support a registered entity’s claim for the Input Tax Credit (ITC) of the GST incurred. It is also required for the following:
- Determining the address of delivery
- For the input services distributor’s mechanism
- To determine the time of supply of goods and services
- Applying GST in case of a change in the rate of tax
- To determine the value of goods or services
- To claim Input Tax Credit;
Mandatory fields of a GST Invoice to be submitted
If you have a registered business, you will be required to provide a GST invoice to your clients to maintain the transparency of your transactions.
- The GST Invoice number and the date of issuance
- Customer name
- Shipping and billing address of the customer
- GSTIN of customer
- Supply location
- Harmonized System of Nomenclature (HSN) code or the Service Accounting Code (SAC)
- Details of the item including the description, quantity, unit, and the total value
- Taxable value and discounts
- The tax rate and amount
- Whether or not GST is payable on a reverse charge basis
- The supplier’s signature
The Advent of GST E-Invoicing
India decided to implement GST E-Invoicing to tackle the generation of fake GST invoices.
A common misconception about the E-invoice is that it needs to be generated on the online tax portal.
On the contrary, GST invoices have to created using accounting or billing software. You need to prepare your GST invoice on an Enterprise resource planning (ERP) software, and then create the JSON file and upload it on the online portal. After this, the IRP will digitally sign the e-invoice after it confirms its authenticity. The GST invoice is not required to be approved by anyone else.
Benefits of GST E-Invoicing
GST E-invoicing has a multitude of benefits to its credit. Here are a few:
- The obvious merit of E-Invoicing is the elimination of fake GST invoices
- You can use E-Invoice data can generate an E-way bill
- It reduces reporting in multiple formats via one time reporting on B2B invoice data
- E-Invoicing significantly reduces Input credit verification issues
Modes of GST E-Invoicing Generation
There are multiple methods that you can expect to be made available for the taxpayer to generate GST E-invoices. The possible ways to create GST E-Invoices are expected to be Web-based, API-based, SMS based, GSP based, Mobile app-based, and finally, Offline tool based.
Creating a GST E-invoice
- Be sure to generate your GST invoice using your accounting or billing system (such as an ERP software) if you are a seller
- The GST invoice should match the E-invoice standards. You must have a feature in the ERP software to export the output invoice data in JSON format.
- If you are not using such software to generate your GST invoice, you can use an offline tool.
- Your software must be capable of creating a JSON of the final invoice that is ready to be uploaded. Keep in mind that the Invoice Registration Portal (IRP) accepts only JSON.
- Upload the e-invoice onto the IRP in the JSON format
- You can upload it directly onto the IRP or using a third-party application.
- If your GST Invoice Reference Number (IRN) is not generated, the IRP will be based on your uploaded JSON.
- However, if the IRN is created, the IRP will verify and confirm the validity of the IRN based on the JSON you have uploaded.
- The Central Registry of the GST System makes sure that you do not upload the GST invoice of the same financial year multiple times.
- Once it is confirmed, the IRP will include its signature to the Invoice data.
- The signed E-invoice data and the IRN will be sent to you.
- The signed E-invoice data and the IRN will be sent to you with the GST System and the E-Way Bill System.
- You can expect the digitally signed JSON with IRN to be returned to you along with the QR.
- You can expect the registered invoice to be transferred to you and the buyer at your respective email addresses.
How will GST E-invoicing reduce Manipulation and Fake GST Invoices?
E-invoicing is expected to reduce the generation of fake GST invoices. Here’s why:
- You can expect the tax authorities to have access to all your transactions as occur in real-time
- The generation of the GST invoice before carrying out a transaction will reduce the risk of manipulation
- Input tax credits can be claimed only if they are valid. Your input tax credit will be matched with the output tax details, thereby making it simple for the GSTN to trace the fake tax credit claims
Given that E-Invoicing has only just been implemented, one can speculate its effect on the generation of fake GST invoices.
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