The GST Council has approved the introduction of ‘E-invoicing’ or ‘electronic invoicing’ in a phased manner for reporting of business to business (B2B) invoices to GST System, starting from 1st January 2020 on a voluntary basis.
Since there was no standard for e-invoice existing in the country, the standard for the same has been finalized after consultation with trade/industry bodies as well as ICAI after keeping the draft in a public place. Having a standard is a must to ensure complete interoperability of e-invoices across the entire GST eco-system so that e-invoices generated by one software can be read by any other software, thereby eliminating the need of fresh data entry – which is a norm and standard expectation today.
The machine readability and uniform interpretation is the key objective. This is also important for reporting the details to GST System as part of Return. Apart from the GST System, adoption of a standard will also ensure that an e-invoice shared by a seller with his buyer or bank or agent or any other player in the whole business eco-system can be read by machines and obviate and hence eliminate data entry errors.
What is E-Invoice?
If an invoice is generated by a software on the computer or Point of Sales (PoS) machine then does it become an e-invoice? Is e-invoice as a system where taxpayers can generate the invoices centrally? Many such questions are raised when e-invoice gets discussed.
E-invoice does not mean the generation of invoices from a central portal of the tax department, as any such centralization will bring unnecessary restrictions on the way trade is conducted. In fact, taxpayers have different requirements and expectations, which can’t be met from one software generating e-invoices from a portal for the whole country.
Invoice generated by each software may look more or less the same, however, they can’t be understood by another computer system even though business users understand them fully.
For example, an Invoice generated by the SAP system cannot be read by a machine that is using the ‘Tally’ system. Likewise, there are hundreds of accounting/billing software that generate invoices but they all use their own formats to store information electronically and data on such invoices can’t be understood by the GST System if reported in their respective formats.
Types of documents to be reported under GST System
While the word invoice is used in the name of e-invoice, it covers other documents that will be required to be reported to IRP by the creator of the document:
i. Invoice by Supplier
ii. Credit Note by Supplier
iii. Debit Note by Supplier iv. Any other document as required by law to be reported by the creator of the document (as notified by the Government from time to time).
The flow of the e-invoice generation, its registration and receipt of confirmation can be logically divided into two major parts:
a) The first part is the interaction between the business (supplier in case of invoice) and the Invoice Registration Portal (IRP).
b) The second part is the interaction between the IRP and the GST/E-Way Bill Systems and the Buyer.
The Format of Unique Invoice Reference Number (IRN):
The unique IRN will be based on the computation of hash of GSTIN of generator of document (invoice or credit note or debit note), Financial Year, Document Type and Document number like invoice number. This hash will be as published in the e-invoice standard and unique for this combination. This way hash will always be the same irrespective of the registrar who processes it.
To ensure deduplication, the registrar will be required to send the hash to Central Registry of GST System to confirm whether the same has been reported already. In case it has been reported by another registrar (as and when more registrars – IRPs – are added) and the Central Registry already has the same IRN, then the registrar will reject the registration and inform the sender by sending appropriate error code. Only unique invoices from a taxpayer will be accepted and registered by the registrar.
Digital Signing by e-Invoice Registration Portal:
The invoice data will be uploaded on the IRP (Invoice Registration Portal), which will also generate the hash (as the IRN) and then digitally sign it with the private key of the IRP. The IRP will sign the complete e-invoice JSON payload (that includes the IRN/hash). Thereafter, this e-invoice signed by the IRP will be a valid e-invoice for the seller and can be used by the seller for his business transactions. The IRP will also push this signed e-invoice to the GST and the E-Way bill systems.
The IRP will also generate a QR code containing the unique IRN (hash) along with some important parameters of invoice and digital signature so that it can be verified on the central portal as well as by an Offline App. This will be helpful for tax officers checking the invoice on the roadside where the Internet may not be available all the time. The seller will be returned a signed JSON with all details including a QR code. The QR code will consist of the following e-invoice parameters:
a. GSTIN of supplier
b. GSTIN of Recipient
c. Invoice number as given by Supplier
d. Date of generation of invoice
e. Invoice value (taxable value and gross tax)
f. Number of line items.
g. HSN Code of main item (the line item having the highest taxable value)
h. Unique Invoice Reference Number (hash)
Multiple Registrar for IRN System:
Multiple registrars (IRPs) will be put in place to ensure 24X7 operations without any break. To start with, NIC will be the first Registrar. GST System will also provide IRP services in due course of time. Based on experience, more registrars (IRPs) will be added.
Standardization of e-Invoice:
A technical group constituted by the GST Council Secretariat has drafted standards for e-invoice after having industry consultation. The e-invoice schema and template, as approved by the GST Council, are available at https://www.gstn.org/e-invoice/. The same has been notified by the Govt of India vide Notification No. 02/2020 dated 01st Jan 2020.
Modes for getting invoice registered:
Multiple modes will be made available so that taxpayer can use the best mode based on his/her need. The modes given below are envisaged at this stage under the proposed system for e-invoice, through the IRP (Invoice Registration Portal):
a. API based
b. mobile app based
c. offline tool based and
d. GSP based.