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Advantages and Disadvantages of E-Invoicing System Under GST

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Under the new e-invoicing system, all business to business (B2B) invoices will get electronically authenticated by GSTN. As done in the past, all businesses will continue to generate invoices on their respective ERP. The ERP providers have to make changes to their schema to adapt to the new standardised format. This new schema will ensure the standardisation of invoices. The advantages and disadvantages of e-invoicing system are as follows:

Latest Updates

Update as on 30th July 2020

1. A new refined format of e-invoice has been notified by CBIC adding 20 new fields and removing 13 fields. Certain fields have undergone changes in character length as well.

2. e-Invoicing system shall apply to those taxpayers with annual turnover exceeding Rs 500 crore instead of Rs 100 crore.

3. Special Economic Zones (SEZ) units shall also be exempted from issuing e-invoices.

Update as on 23rd March 2020

The implementation of e-invoicing and the QR code has been deferred to 1st October 2020.

Exemption from e-Invoicing and QR code has been granted to sectors such as the insurance, banking, financial institutions, NBFCs, GTA, and passenger transportation service, etc.

Advantages of e-invoicing system

  1. Real-time tracking of invoices: E-invoicing allows real-time tracking of invoices prepared by a supplier. This allows for faster availability of input tax credit (ITC).
  2. One-time reporting of B2B invoices:Under e-invoicing, a taxpayer has to report the invoices one time and get it authenticated from the GST portal. Upon authentication, the details will be auto-populated to GSTR-1. This reduces the manual reporting under GST returns.
  3. Easy creation of e-way bill: E-invoicing facilitates the easy generation of the e-way bill as the taxpayer has to just update vehicle details. The details in Part-A of e-way bill will get auto-populated from e-invoice authenticated from the GST portal.
  4. Helps the buyers: E-invoice once uploaded on the GST portal for authentication will be shared with the buyer as well on his e-mail ID mentioned on the e-invoice. This will help the buyer to reconcile his purchase order with the e-invoice and also accept/reject the invoice on a real-time basis.
  5. Reduction in frauds: Real-time availability of data with tax authorities will lead to a reduction in frauds.
  6. Reduction in data entry errors: Under the e-invoicing system, the invoice will be uploaded on the common portal, which will facilitate multipurpose reporting. All invoices once authenticated will get transferred to the GST portal and e-way bill portal on a real-time basis. This auto-population will eliminate the need for manual data entry while filing GST returns, and reduce data entry errors.
  7. Allows interoperability: As the e-invoices are generated in a standardised format, the invoice generated from one software can be read by different software as well. This allows interoperability.
  8. Curb tax evasion: Real-time access to data will lessen the scope of manipulation of invoices as the invoices will get generated before carrying out a transaction. This will further reduce the scope of fake GST invoices, and similarly, only genuine ITC can be claimed. As the input tax credit and output tax details are readily available, it becomes easier for the tax officials to track fake input credit.
  9. QR code: The GST invoices are essential for calculating the amount of ITC. An assessee may misplace an invoice that was issued or may require additional copies of the same invoice. In such cases, the QR code will be of great help. By scanning this code, the assessee can generate the invoice any number of times in a PDF format.

Disadvantages of e-invoicing system

The main purpose of the introduction of e-invoicing is the reduction of tax evasion. But, the new system only facilitates e-invoicing of B2B invoices and not B2C invoices. The maximum number of frauds happen in B2C invoices as no ITC is involved. Thus, such a system should come into force which allows customers to report non-compliant invoicing and thus help to curb tax evasion at its source.

The second major point is that the capacity for upload of an invoice is based on the GSTR-1 data submitted over the last two years. Thus, the GSTN should be prepared with up-to-date technology to ensure minimum downtime as the same may impact compliance negatively.

Also, the archiving option is not available on IRP. It has no mandate to store invoices for more than 24 hours. 

To know more about the disadvantages of the e-invoicing system, please read our article – ‘Issues under the e-invoicing system’