The GST Council has approved introduction of ‘E-invoicing’ or ‘electronic invoicing’ in a phased manner for reporting of business to business (B2B) invoices to GST System, starting from 1st January 2020 on voluntary basis. Since there was no standard for e-invoice existing in the country, standard for the same has been finalized after consultation with trade/industry bodies as well as ICAI after keeping the draft in public place. Having a standard is a must to ensure complete inter-operability of e-invoices across the entire GST eco-system so that e-invoices generated by one software can be read by any other software, thereby eliminating the need of fresh data entry – which is a norm and standard expectation today. The machine readability and uniform interpretation is the key objective. This is also important for reporting the details to GST System as part of Return. Apart from the GST System, adoption of a standard will also ensure that an e-invoice shared by a seller with his buyer or bank or agent or any other player in the whole business eco-system can be read by machines and obviate and hence eliminate data entry errors.
The GST Council approved the standard of e-invoice in its 37th meeting held on 20th Sept 2019 and the same along with schema has been published on GST portal.
A. What is e-invoice?
E-invoice does not mean generation of invoices from a central portal of tax department, as any such centralization will bring unnecessary restriction on the way trade is conducted. In fact, taxpayers have different requirements and expectation, which can’t be met from one software generating e-invoices from a portal for the whole country. Invoice generated by each software may look more or less same, however, they can’t be understood by another computer system even though business users understand them fully. For example, an Invoice generated by SAP system cannot be read by a machine which is using ‘Tally’ system. Likewise there are hundreds of accounting/billing software which generate invoices but they all use their own formats to store information electronically and data on such invoices can’t be understood by the GST System if reported in their respective formats. Hence a need was felt to standardize the format in which electronic data of an Invoice will be shared with others to ensure there is interoperability of the data.
The adoption of standards will in no way impact the way user would see the physical (printed) invoice or electronic (ex pdf version) invoice. All these software would adopt the new e-Invoice standard wherein they would re-align their data access and retrieval in the standard format. However, users of the software would not find any change since they would continue to see the physical or electronic (PDF/Excel) output of the invoices in the same manner as it existed before incorporation of e-Invoice standard in the software. Thus the taxpayer would continue to use his accounting system/ERP or excel based tools or any such tool for creating the electronic invoice as s/he is using today.
To help small taxpayers adopt e-invoice system, GSTN has empaneled eight accounting & billing software which provide basic accounting and billing system free of cost to small taxpayers. Those small taxpayers who do not have accounting software today, can use one of the empaneled software products, which come in both flavors, online (cloud based) as well as offline (installed on the computer system of the user).
B. Benefits of introduction of e-invoice from GST perspective
Benefits of e-Invoice
One time reporting on B2B invoice data in the form is generated to reduce reporting in multiple formats (one for GSTR-1 and the other for e-way bill).
To generate Sales and purchase register (ANX-1 and ANX-2) from this data to keep the Return (RET-1 etc.) ready for filing under New Return. e-Way bill can also be generated using e-Invoice data.
Substantial reduction in input credit verification issues as same data will get reported to tax department as well to buyer in his inward supply (purchase) register.
On receipt of info through GST System as buyer can do reconciliation with his Purchase Order and accept/reject in time under New Return.
Complete trail of B2B invoices.
System level matching of input credit and output tax.
Generation of e-invoice will be the responsibility of the taxpayer who will be required to report the same to Invoice Registration Portal (IRP) of GST, which in turn will generate a unique Invoice Reference Number (IRN) and digitally sign the e-invoice and also generate a QR code. The QR Code will contain vital parameters of the e-invoice and return the same to the taxpayer who generated the document in first place. The IRP will also send the signed e-invoice to the recipient of the document on the email provided in the e-invoice.
Note: To begin with, there will be only one IRP, but more IRPs will be added to provide higher availability, redundancy, speed and a diversified and distributed service to tax payers with a choice.
C. What type of documents are to be reported to GST System?
While the word invoice is used in the name of e-invoice, it covers other documents that will be required to be reported to IRP by the creator of the document:
Invoice by Supplier
Credit Note by Supplier
Debit Note by Supplier
Any other document as required by law to be reported by the creator of the document
D. What will be the workflow involved?
The flow of the e-invoice generation, registration and receipt of confirmation can be logically divided into two major parts.
The first part being the interaction between the business (supplier in case of invoice) and the Invoice Registration Portal (IRP).
The second part is the interaction between the IRP and the GST/E-Way Bill Systems and the Buyer
The two parts of the workflow are depicted diagrammatically below and followed up with an explanation of the steps involved. As the process evolves and system matures the same would be intercommunicated between buyer’s software and seller’s software, banking systems etc.
Part A: Flow from Supplier (commonly known as seller) to IRP.
Step 1 is the generation of the invoice by the seller in his own accounting or billing system (it can be any software utility that generates invoice including those using excel or GSTN’s provided Offline Utility). The invoice must conform to the e-invoice schema (standards) that is published and have the mandatory parameters. The optional parameters can be according to the business need of the supplier. The supplier’s (seller’s) software should be capable to generate a JSON of the final invoice that is ready to be uploaded to the IRP. The IRP will only take JSON of the e-invoice.
Note: Seller should have a utility that will output invoice data in JSON format, either from his accounting or billing software or his ERP or excel/word document or even a mobile app. Those who do not use any accounting software or IT tool to generate the invoice, will be provided an offline tool to key-in data of invoice and then submit the same. The small and medium size taxpayers (having annual turnover below Rs 1.5 Crores) can avail accounting and billing system being offered by GSTN free of cost.
Step 2 is to generate the unique Invoice Reference Number (IRN) (in technical terms hash of 3 parameters using a standard and well known hash generation algorithm e.g. SHA256). This is an optional step. The seller can also generate this and upload along with invoice data. The 3 parameters which will be used to generate IRN (hash) are:
Supplier’s invoice number
Financial year (YYYY-YY). (The IRN or hash generation algorithm will be prescribed by GSTN in the e-invoice standard).
Step 3 is to upload the JSON of the e-invoice (along with the hash, if generated) into the IRP by the seller. The JSON may be uploaded directly on the IRP or through GSPs or through third party provided Apps.
Step 4: The IRP will also generate the hash and validate the hash of the uploaded json, if uploaded by the supplier. The IRP will check the hash from the Central Registry of GST System to ensure that the same invoice from the same supplier pertaining to same Fin Year is not being uploaded again. On receipt of confirmation from Central Registry, IRP will add its signature on the Invoice Data as well as a QR code to the JSON. The QR code will contain GSTIN of seller and buyer, Invoice number, invoice date, number of line items, HSN of major commodity contained in the invoice as per value, hash etc. The hash computed by IRP will become the IRN (Invoice Reference Number) of the e-invoice. This shall be unique to each invoice and hence be the unique identity for each invoice for the entire financial year in the entire GST System for a taxpayer. [GST Systems will create a central registry where hash sent by all IRPs will be kept to ensure uniqueness of the same].
Step 5 will involve sharing the uploaded data with GST and e-way bill system. More details are given in Part-B below.
Step 6 will involve returning the digitally signed JSON with IRN back to the seller along with a QR code. The registered invoice will also be sent to the seller and buyer on their mail ids as provided in the invoice.
Part B: Flow from IRP to GST System/E-Way Bill System & Buyer
The following diagram shows how e-Invoice data would be consumed by GST System for generation of e-way bill or populating relevant parts GST Returns, stated in Step-5 above.
Step 6 (a) will be to share the signed e-invoice data along with IRN (same as that has been returned by the IRP to the seller) to the GST System as well as to E-Way Bill System.
Step 6 (b) The GST System will update the ANX-1 of the seller and ANX-2 of the buyer, which in turn will determine liability and ITC.
Step 6 (c) E-Way bill system will create Part-A of e-way bill using this data to which only vehicle number will have to be attached in Part-B of the e-way bill.
Note 1: The e-invoice standardized schema has mandatory and optional items. The e-invoice shall not be accepted in the GST System unless all the mandatory items are present. The optional items are to be used by the seller and buyer as per their business need to enforce their business obligations or relationships.
Note 2: Seller may send his e-invoice for registration to more than one registrar. But the GST system and IRP will perform a de-duplication check with central registry to ensure that the IRN that is generated is unique for each invoice. Therefore, the IRP shall return ONLY ONE registered IRN for each invoice to the seller. In case of multiple registrars (more than one IRPs) only one IRP will return a valid IRN to the seller. Except one, all other IRPs will reject the request of registration.
Note 3: The QR code will enable quick view, validation and access of the invoices from the GST system from hand held devices.
E. Direct Invoice Generation on IRP (Invoice Registration Portal)
Many people think that e-invoice will be generated from government’s tax portal. This is a myth and invoices will continue to be generated using an Accounting or a billing software, keeping in view the varied need of item master, buyer master, UQC etc. along with sub-second response from IR Portal (IRP). Thus, direct creation/generation of e-invoice from GST portal or any other government portal is not envisaged/planned.
Small taxpayers can use one of the eight free accounting/billing software currently listed by GSTN. Also, GSTN will provide Offline Tool where data of an invoice, generated on paper can be entered which in turn will create JSON file for uploading on the IRP. Taxpayers can also use one of the commercially available accounting/billing software for this purpose. All accounting and billing software companies are being separately asked to adopt the e-invoice standard so that their users can generate the JSON from the software and upload the same on the IRP.
F. Features of e-invoice system
The Format of Unique Invoice Reference Number (IRN):
The unique IRN will be based on the computation of hash of GSTIN of generator of document (invoice or credit note etc.), Year and Document number like invoice number. This hash will be as published in the e-invoice standard and unique for this combination. This way hash will always be the same irrespective of the registrar who processes it. The hash could also be generated by the taxpayers based on above algorithm. The providers of accounting and billing software are being separately asked to incorporate this feature in their product. One can pre-generate and print it on the invoice book, however, the same will not make the invoice valid unless it is registered on the portal along with invoice details.
Note: The hash algorithm that is to be used by the taxpayers has been specified in the e-invoice standard that is published.
The hash will be the IRN.
To ensure deduplication, the registrar will be required to send the hash to Central Registry of GST System to confirm whether the same has been reported already. In case it has been reported by another registrar (as and when more registrars – IRPs – are added) and the Central Registry already has the same IRN, then the registrar will reject the registration and inform the sender. Only unique invoices from a taxpayer will be accepted and registered by the registrar.
Digital Signing by e-Invoice Registration Portal: The invoice data will be uploaded on the IRP (Invoice Registration Portal), which will also generate the hash in order to verify it and then digitally sign it with the private key of the IRP. In case the taxpayer submits hash also along with invoice data, the same will be validated by IRN system. The IRP will sign the e-invoice along with hash and the e-invoice signed by the IRP will be a valid e-invoice and used by GST/E-Way bill system.
QR Code: The IRP will also generate a QR code containing the unique IRN (hash) along with some important parameters of invoice and digital signature so that it can be verified on the central portal as well as by an Offline App. This will be helpful for tax officers checking the invoice on the roadside where Internet may not be available all the time. The web user will get a printable form with all details including QR code. The QR code will consist of the following e-invoice parameters:
GSTIN of supplier
GSTIN of Recipient
Invoice number as given by Supplier
Date of generation of invoice
Invoice value (taxable value and gross tax)
Number of line items.
HSN Code of main item (the line item having highest taxable value)
Unique Invoice Reference Number (hash)
The offline app will be provided on the IRP for anyone to download to authenticate the QR code of the invoice offline and its basic details. However, to see the whole invoice, one will have to connect to the portal and verify and see the details online. The facility to download entire invoice will be provided to tax officers, the way it is currently available under E-way bill system.
Note 4: The facility of QR code verification will be made available only through the GST System and not the IRP. This is because the IRP will not have the mandate to store invoices for more than 24 hours. In order to achieve speed and efficiency, the IRP will be a lean and focused portal for providing invoice registration and verification service, IRN and the QR codes. Hence, storing of the invoices will not be a feature of the IRP.
Standardization of Invoice: A technical group constituted by the GST Council Secretariat has drafted standards for e-invoice after having industry consultation. The e-invoice schema and template, as approved by the GST Council, are available at https://www.gstn.org/e-invoice/.
G. CREATION OF E-INVOICE
Modes for getting invoice registered: Multiple modes will be made available so that taxpayer can use the best mode based on his/her need. The modes given below are envisaged at this stage under the proposed system for e-invoice, through the IRP ( Invoice Registration Portal ):
API mode: Using API mode, the big tax payers and accounting software providers can interface their systems and pull the IRN after passing the relevant invoice information in JSON format. API request will handle one invoice request at time to generate the IRN. This mode will also be used for bulk requirement (user can pass the request one after the other and get the IRN response within fraction of second) as well. The e-way bill system provides the same methodology.
Printing of Invoice
The taxpayer can continue to print his paper invoice as he is doing today including logo and other information. E-invoice schema only mandates what will be reported in electronic format to IRP.