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

30th June 2021
The CBIC has issued a notification seeking to waive the penalty imposed on non-compliance of dynamic QR code provisions for B2C invoices between 1st December 2020 and 30th September 2021.

1st June 2021
CBIC has notified vide Central Tax Notification no.23 dated 1st June 2021 that the e-invoicing system shall not apply to a government department and local authority.

30th March 2021
The CBIC has issued a notification seeking to waive the penalty imposed on non-compliance of dynamic QR code provisions for B2C invoices between 1st December 2020 and 30th June 2021, provided the said person complies with the provisions of the said notification from 1st July 2021.

8th March 2021
The CBIC has notified that e-Invoicing will be applicable from 1st April 2021 for businesses with an aggregate turnover of more than Rs.50 crores (in any financial year from FY 2017-18 onwards).

29th November 2020
The CBIC issued a notification seeking to waive the penalty imposed on non-compliance of dynamic QR code provisions for B2C invoices between 1st December 2020 and 31st March 2021, provided the eligible registered person complies with these provisions from 1st April 2021.

10th November 2020
The taxpayers having an aggregate turnover exceeding Rs.100 crore should implement e-invoicing from 1st January 2021.

1st October 2020
The applicable taxpayers have been given a grace period of 30 days for generating an Invoice Reference Number (IRN). However, this grace period is valid for the invoices issued between 1st October 2020 to 31st October 2020.

30th September 2020
Now, the aggregate turnover should be checked from FY 2017-18 till FY 2019-20, for checking the applicability of e-invoicing. Also, the date of implementation of the dynamic QR Code for B2C invoices has been extended until 1st December 2020.

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 an 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.

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 insurance, banking, financial institutions, NBFCs, GTA, passenger transportation service and movie tickets.

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:

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

Is e-invoicing applicable to RCM transactions?

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.

Under e-invoicing, a supplier must upload all their B2B invoices on the Invoice Registration Portal (IRP). 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.

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