How can one solve GST tax credits by establishing new digital infrastructure for e-invoicing?

Without a well-designed digital infrastructure, the benefits of GST cannot be leveraged to the maximum limits. Mandatory e-invoicing for businesses with over Rs 50 crore turnover is a welcome step for the growth of the economy as it will increase revenue and compliance base.

The move will also give a push to the government's 'Digital India' campaign. Complete automation of core services like return filing and payments, registration, integration with various external stakeholder systems, real-time data sharing between GSTN and tax administrations are a few of the basic objectives of the new rules.

Till now, businesses have been generating invoices through various software and manually uploading them in the GSTR-1 return. Once the respective supplier files the GSTR-1, the invoice information is reflected in GSTR-2A for viewing only. In that case, transporters were required to generate e-way bill by again importing the invoices in excel. Under the new system, the process of generating and uploading invoice will remain the same. The data will seamlessly flow for not only GSTR-1 preparation but also, for the e-way bill generation.

The new system aims to enhance the ease of doing business. E-invoicing involves a high level integration between portals such as e-waybill & IRP, STN portal and taxpayer ERP software. It does not imply the generation of invoice on the GST portal rather it mandates the submission of an already generated invoice on a common e-invoice portal. Thus, it seeks to automate multi-purpose reporting with a one-time input. Though the move brings with it various challenges in the way businesses have been functioning, subsequently, this disruption will deliver numerous benefits. It will save a lot of time and efforts that go into GST compliance in addition to ensuring an error-free process.

• Faster availability of genuine input tax credit

• E-invoicing will do away with the major gap in data reconciliation under GST to reduce mismatch errors

• Automation of the tax return filing process and backward integration – many relevant details would be auto-populated in returns, especially for generating

Part-A of e-way bills

• When created on one software, e-invoices can be read by another, allowing interoperability

• Real-time tracking of invoices prepared by the supplier

• Lesser possibility of audits by the tax authorities

E-invoicing will also help in curbing tax evasion. It will reduce the chances of fake GST invoices as all invoices need to be generated through the GST portal. Since one can match the input credit with output tax details, it becomes easier to track fake tax credit claims. Additionally, tax authorities will have access to every transaction as they take place in real-time.

Although the new move is exciting, there are some challenges. First, many parts of the country still suffer from a lack of digital infrastructure. In such a case, for a small business with a factory at a remote location, e-invoicing may appear to be a compliance hassle as network connectivity is a key issue. Second, large organisations have to change their existing process which involves both transactional as well as operational cost. Training needs to be provided to all the concerned stakeholders and IT budgets need to be redesigned while not letting the working capital get affected.

• Grouping vendors according to their size of operations to identify data collection requirement

• Customisations to the accounting system to make it compatible with the government regulations

• Identifying the transactions requiring e-invoicing like asset transfers, cross changes, imports etc.

• Updating information about vendors to fulfil the additional information requirements for invoices (PIN codes, bank details, payee details etc.)

E-invoicing is a great move towards digital empowerment of the economy and the resultant positive impact on operational efficiency will soon be realized by businesses. MSMEs will automatically get equipped with experience efficient functioning, advanced technology and move towards growth.

The author, Rajesh Gupta, is a co-founder at Busy Infotech Pvt Ltd. The views expressed are personal