Are Reverse Charge Transactions Covered Under e-Invoicing?

e-Invoicing applies to transactions that fall under the ambit of the reverse charge mechanism under GST. This article covers the different types of RCM transactions and e-invoicing applicability on the same.

Latest Updates on e-Invoicing

10th May 2023
CBIC notified the 6th phase of e-invoicing. Hence, taxpayers with ₹5 Cr+ turnover in any financial year from 2017-18 shall issue e-invoices w.e.f 1st August 2023.

06th May 2023
The GST department has deferred the time limit of 7 days to report the old e-invoices on the IRP portals by three months. Further, the department is yet to announce the new implementation date.

13th April 2023
As per the GST Network's advisories dated 12th April 2023 and 13th April 2023, taxpayers with annual turnover equal to or more than Rs.100 crore must report tax invoices and credit-debit notes to IRP within 7 days of invoice date from 1st May 2023.

11th October 2022
The GST Council may implement the next phase of e-invoicing for businesses with an annual turnover of more than Rs.5 crore from 1st January 2023. The system may get extended to businesses with a turnover of over Rs.1 crore by the end of the next fiscal year.

1st August 2022 
The e-Invoicing system for B2B transactions has now been extended to those with an annual aggregate turnover of more than Rs.10 crore up to Rs.20 crore starting from 1st October 2022, vide notification no. 17/2022. 

24th February 2022
The e-Invoicing system will get extended to those annual aggregate turnover of more than Rs.20 crore up to Rs.50 crore starting from 1st April 2022, vide notification no. 1/2022.
 

What is the reverse charge mechanism?

Under GST, normally, the supplier of goods and services is liable to pay the tax. However, under the reverse charge mechanism, the recipient of goods and services is liable to pay GST instead of the supplier. This could be because the supplier is not a registered person under GST law, or the supplier falls in the category of service providers notified by the government, or any other reason. Hence, the recipient of supplies pays the GST on behalf of the supplier to the government and reports the same in his GST returns. 

Reverse charge is applicable in the cases mentioned below:

• Services by an e-commerce operator
• Supply of goods/services by an unregistered dealer to a registered dealer
• Certain supplies as notified by the CBIC

Is e-invoicing applicable to RCM transactions?

Before we begin the discussion of e-invoicing for RCM transactions, let's know the applicability of the e-invoicing system. e-Invoicing was implemented in India in a phased manner from 1st October 2020 for companies having turnover higher than Rs.500 crore in any financial year from FY 2017-18 onwards. Later, it was made applicable to businesses with turnover higher than Rs.100 crore and Rs.50 crores from 1st January 2021 and 1st April 2021, respectively. Currently, the limit of Rs.20 crore applies from 1st April 2022. Later from 1st October 2022, it has been made applicable to a limit of more than Rs.10 crore.

Under e-invoicing, a supplier must upload all their B2B invoices on the Invoice Registration Portal (IRP) in a defined time limit if applicable (From 1st May 2023, 7-day window applies to report invoices to IRP for those with AATO equal to or more than Rs.100 crore). The IRP authenticates the invoice and issues an Invoice Reference Number (IRN). The supplier carries out this process. But, in the case of reverse charge transactions, the recipient of supplies generates the invoice and reports the same to the government in the GST returns. The invoice will now need to be reported to the IRP first, and from there, the same will get auto-populated in the GST returns.

Now, let’s discuss the applicability of e-invoicing on different types of RCM transactions: 

1. A supplier is an unregistered person- In such a case, the supplier is not registered on the GST portal and does not have a GSTIN. Hence, he cannot get registered on the IRP and generate e-invoices. In this case, e-invoicing is not applicable.
2. Services by an e-commerce operator- Normally, an e-commerce operator pays GST as if they are suppliers and generate e-invoices. Thus, they are liable to obtain the IRN. Note that B2C sales are not liable for IRN generation. It is to be noted that e-invoicing provisions, here, would be applicable if the supplier is covered under the e-invoicing mandate and the sale is a B2B transaction.
3. Certain supplies as notified by the CBIC– If suppliers of such goods and services is liable for e-invoicing as per the mandate, then they will have to generate IRNs on RCM invoices too. In simple words, from 1st April 2021, any business crossing Rs.50 crore in turnover (with a few exemptions) will be required to generate IRNs for RCM invoices as well.

What are the validations provided by the IRP for reverse charge transactions?

The following are the validations provided by the IRP for reverse charge mechanism:

1. ‘Reverse Charges’ should be set as ‘Y’ in case of B2B and SEZ invoices, and tax will be paid in a reverse manner as per normal rule.
2. The supplier should generate the IRN even in the case of B2B reverse charge invoices.