Presently, taxpayers with an AATO of Rs. 20 Cr. and above need to generate e-invoices. E-invoicing under GST was introduced for taxpayers having turnover above the stated threshold limit whereby they need to get their B2B invoices registered with the Invoice Registration Portal (IRP). On successful registration, a unique IRN will be issued along with a digitally-signed QR code containing select details of the invoice and the full invoice data digitally signed by the Government. In relation to e-invoicing and ITC claim, the IRN is mandatory in order to avail input tax credit.
Inter-operability and seamless exchange of data, for not only the Government but also for the businesses, is often the underneath reason for the implementation of data standards like this. That is why, as a best practice and also for future tracking purposes, it is highly recommended to store the IRN and QR code back in the source accounting and ERP systems.
While the major discussion and upgrades for e-invoicing are seen from suppliers and outward sales perspective, impact on the incoming invoices i.e. the purchase cycle also needs attention.
Impact of e-invoices on the purchase cycle
1. Identify if your vendors need to be e-invoice compliant
An e-invoice will be considered valid once an IRN is generated for the same. Further, it is necessary to get the IRN and QR code printed on the final invoice. Thus, when you are on the receiving side of the invoice cycle, having IRN for an invoice will be necessary to claim ITC.
Now, the e-invoice mandate, as we know, is applicable to suppliers having turnover above ₹ 500 cr. Invoices received from such suppliers need to have an IRN. While it can be anticipated that some functionality may be provided by the Government to check whether or not the taxpayer (i.e. supplier) is covered under e-invoicing, it is recommended that as a preparatory step to review your vendor master and identify the vendors who need to meet e-invoicing mandate.
2. Verify the IRN and QR code on invoices
The logic for IRN and content of QR code is standard and is already published by the Government in the public domain. This implies any system can generate an IRN and QR code. However, digitally-signed QR code is available only for IRP-registered invoices.
Hence it is recommended to verify the IRN and QR code which is included on the invoices. We are expecting that the Government portal will have a facility for such verification. IRIS Onyx the e-invoicing solution of IRIS shall have an in-built functionality for this validation.
Advantages of e-invoicing to be leveraged for the purchase cycle
The process of IRN generation is to be done by issuers of the invoice i.e. the supplier or vendor. The fact that as a recipient, taxpayers will now receive digitally signed, digitally readable and traceable invoices, is another important aspect of the e-invoice implementation that taxpayers can derive benefits from.
1. Building efficient processes
E-invoice mandate requires all the suppliers to provide data as per the specified standard data fields. The logic for IRN and the content for QR is standard for invoices generated by any vendor using any system. Having data in standard format is one of the basic conditions for any processing to be automated.
Now as a recipient of standard e-invoices, the recording of purchase invoices in the accounting systems can be automated and this itself can result in achieving higher efficiency and accuracy of data in source systems. Reading data from standard e-invoices and posting it in source systems is use-case for taxpayers to consider.
2. Getting better reconciliation results
Matching purchase registered with GSTR 2A or in upcoming new GSTR 2B which has ITC related computations, is a critical activity which taxpayers need to do, for accurate ITC claim. For matching the data, the common factor used to identify comparable invoices is the invoice number, invoice date, and GSTIN of the counterparty. The matching of actual data is the next step once comparable invoices are found.
One of the biggest challenges in reconciliation has been to identify the comparable invoices because the invoice number recorded in the purchase register is not exactly the same as the invoice number provided by the supplier. Now to handle such cases the solution providers including us, have been providing fuzzy logic and combinations which can increase the probability of finding comparable invoices.
With e-invoices, this challenge can be easily overcome if IRN is used as the base of finding comparable invoice. For this to happen, the IRN needs to be tagged /stored along with the purchase invoices.
Some gaps to be handled
E-invoicing mandate is applicable to notified class of taxpayers and transaction types. ANX 1 and ANX 2 being stalled for implementation, there is no information as yet whether e-invoice data will be populated in GSTR 1. Irrespective of whether the data gets populated or not, there are certain challenges and gaps which need to be addressed.
Invoice data edited after IRN generation
IRN is made up of Supplier’s GSTIN, Invoice Number, Document Type and Financial Year. Post generation of IRN, though not recommended, the invoice could be edited while filing GSTR 1. The data of GSTR 1 will get reflected in GSTR 2. This could result in differences between the actual invoice and the auto-populated GSTR 2A (from the edited GSTR 1). Such differences can be identified with the detailed matching of all invoice fields. IRN will be useful for picking up comparable invoices.
IRN will not be available on all purchase invoices
For invoices from suppliers who are not covered under the e-invoice mandate, IRN will not be available. Taxpayers can consider deriving IRN using the logic as published by the Government and have a consistency in recording all purchase transactions. This will ensure reconciliation flow can be followed in a similar way for all purchase entries.
The non-availability of IRN may also create challenges in obtaining complete automation. Given that e-invoice is a country-wide standard, taxpayers, as part of their procurement terms and policies, can ask their vendors to prepare invoice as per e-invoice standard even if IRN is not to be generated by them.
Alternatively, taxpayers operating within a closely dependent supply chain can get vendors to prepare invoice as per their internal standards which can enable automation.
E-invoicing is the next game-changer
As a concept, e-invoicing has many advantages to offer to all the participants – suppliers, recipients and the Government. It also opens up avenues to provide value-added solutions and services by using the highest standard, processable and recent invoice data.
The mandate currently is applicable to notified taxpayers and specified transaction types. Hence not all vendors are under the purview of e-invoicing mandate and not all data may be available in a standard format.
Taxpayers should evaluate all system and process changes and also solutions which provide for both sales and purchase side of e-invoicing.
IRIS GST, a leading GSP, is all set to make your e-invoicing journey seamless and enriching. For more details on e-invoicing mandate, download our eBook now
IRIS Onyx is an automated, integrated and seamless e-invoicing solution!
It is a one-stop e-invoicing solution that can integrate with your billing systems seamlessly in multiple ways and generate IRN with zero disruption to your business.