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How does e-invoicing help MSMEs grow?

Updated on :  

08 min read.

Electronic invoicing or e-invoicing system is shifting several small businesses online that are falling under the definition of Micro, Small & Medium Enterprises (MSMEs) in India. Constant changes in GST, with e-invoicing being the most impactful, have pushed MSMEs to deal with several new and tech-based regulations. It has affected the way they operate their business.

Which MSMEs must comply with e-invoicing?

As per the Central Goods and Services Tax (CGST) notification 01/2022 dated February 24, 2022, Indian enterprises with a turnover of INR 20 crore to INR 50 crore in any previous fiscal year from 2017-18 to 2021-22, need to produce e-invoices from April 1, 2022.

As per the Notification No. 17/2022-CT dated 01-08-2022, with effect from 1st October 2022, e-invoicing shall be mandatory for the assesses with turnover exceeding INR 10 crores in any of the financial years from 2017-18 to 2021-22.

Here, the aggregate turnover includes the turnover pertaining to all GSTIN under a single PAN number. If the assessee exceeds the threshold limit of INR 10 crore in the current year, then e-Invoicing will apply to such assessee from the start of the next financial year.

Benefits of e-invoicing for MSMEs

As a result of e-invoicing for MSMEs, businesses now need to synchronise their business with the e-invoicing site for generating invoice reference numbers (IRN) for all B2B. They must ensure that their accounting systems are updated to comply with the structural outline requirements relating to GST e-invoicing for MSMEs.

Such businesses would now want to switch to third-party applications or adopt SaaS software that can automate compliance concerns with a click of a button. Most of these portals are mobile-first, which means they can be used on various devices and has the required tools for e-invoicing.

Extending the scope of e-invoicing for MSMEs has gradually provided the government with some much-needed transparency for curbing tax evasion and input tax credit (ITC) fraud while at the same time aiding the ease of doing business. However, the Indian government isn’t only the benefactor here. Sizeable benefits could be reaped by MSMEs as well. Some of the key benefits are listed below:

  • The standardised format of digital GST invoices – e-invoicing has helped standardise the format of digital invoices issued by a business for goods and services. This standardisation allows interoperability where invoices generated from one software could be read by different software.
  • Real-time and seamless invoice tracking – With the e-invoices being generated, authenticated, and tracked in real-time over the web, businesses could save time which would otherwise be spent manually retrieving the data for processing in bulk at the end of every month. This would also streamline business processes across functions, viz. Inventory management, payable management as well invoicing.
  •  Auto-filled GSTR-1 – As e-invoicing automates the GST return-filing process, businesses no longer need to do manual calculations for filing GST returns. This reduces the risk of errors. However, even if the GSTR-1 is auto-filled, the assessee must perform a recon between its sales book and GSTR -1 to avoid missing or duplicate invoices.
  • Ease of sharing of invoices – Once the invoices are uploaded to the GST portal, they are pushed to the Goods and Services Tax Network (GSTN). This enables businesses to share e-invoices digitally with their customers.
  • Easy e-way bill generation – Since the invoices uploaded over the common portal are pushed to the GSTN, e-way bill portals auto-populate with the data, enabling seamless generation of e-way bills.
  • Vendor onboarding – As e-invoices generated by a supplier can be easily read by their customer using different applications, it significantly simplifies the vendor onboarding process.
  • Reduced data errors – The invoices uploaded on the common portal facilitate multipurpose reporting. Once authenticated, invoices get auto-populated in the GST returns, eliminating the need for manual data entry while filing GST returns.
  • Improved formal credit access with invoice financing – e-Invoicing helps the MSMEs in availing credit for the e-invoice.
  • Other Benefits – IRN generation allows timely payments to MSMEs & smooth ITC claims for their customers. It leads to an increase in business prospects of large enterprise customers as they now become confident in dealing with small businesses.