The clock is ticking for the e-invoicing mandate which goes live from April 2020. And the taxpayers are getting ready to put their processes and systems in place for generating Invoice Reference Number (IRN) to transform a normal invoice into a valid e-invoice. Government has made available test portal for taxpayers to test during the voluntary trial run up until April 2020.
For a quick recap, e-invoicing mandate is for taxpayers having turnover above ₹ 100 cr whereby they need to get their B2B invoices registered with Government portal i.e. 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.
Inter-operability and seamless exchange of data, for not only the Government but also for the businesses, is often the underneath reason for 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-invoice on the purchase cycle
1. Identify if your vendors needs 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 ₹ 100 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 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 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 future ANX 2) 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 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 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 the 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. While flow of data from e-invoice to ANX 1 will be implemented by Government, there could be some 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, edits will be allowed to be made in the invoice fields on the GST portal while preparing ANX 1. This could result in differences between the actual invoice and the auto-populated ANX 2 (from the edited ANX 1). Such differences can be identified with 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 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 similar way for all purchase entries.
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.
Emergence of new standard for invoice exchange
E-invoice brings in much-needed standardisation for generating the invoices and the logical next step is sharing of invoices between the parties. The IRP system is the portal for registering the invoice, and dissemination of the invoice to other parties is not the primary function. Also, as per the current implementation, IRP is expected to store data only for 24 hours. Thus, IRP will never be the central repository of all your invoices.
Considering the need of sharing the data between the counterparties and making the exchanged data directly processable by the systems, Government is proposing the new standard for data exchange called as SIMPoL.
Standard Invoice Messaging Protocol (SIMPoL), as it is called, will be a mechanism that will enable peer-to-peer sharing of invoice, without the need for any central intermediary in the place. The suppliers and recipients systems can adopt this messaging specification to share the invoices.
SIMPoL is currently released as a proposed framework and open for public comments.
The proposed concept of messaging standard does look promising. Our solutions already have peer-to-peer sharing feature enabled, which we call as My Network and will be enhanced to adopt SIMPoL standard as and when it gets finalized.
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 highly 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 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