E-Invoicing Under GST: Part 1 - What is an e-invoice?

Starting January 1st 2020, the GST Council introduced ‘e-invoicing’ or ‘electronic invoicing’ in a phased manner for reporting of business to business (B2B) invoices to GST System, on a voluntary basis. Since there has never been a standardized format for e-invoice in the country, a format has been finalized after consultation with trade/industry bodies as well as ICAI.  Having a standardized invoicing format ensures complete interoperability of e-invoices across the entire GST eco-system as it allows e-invoices generated by one software to be read by any other software, thereby eliminating the need of fresh data entry – which is a norm and standard expectation today. Machine readability and uniform interpretation is the key objective of a standard e-invoice format.

This is also important for reporting the details to the GST System while filing Returns. Apart from the GST System, adoption of a standard format will also ensure that an e-invoice shared by a seller with their buyer, bank, agent or any other player in the business ecosystem can be read by machines and thereby eliminate data entry errors.

The GST Council approved the standard of e-invoice in its 37^th meeting held on 20^th September 2019 and the same along with schema is available on the GST portal. Standard formats are generally abstruse and thus a document answering FAQs is required to bust any myths or misconceptions around e-invoicing. It is expected that this document will prove to be useful for taxpayers, tax consultants and software companies that are required to adopt the designed standard format.

A. What is an e-invoice?

A number of questions have been raised by taxpayers around the new e-invoicing system. If an invoice is generated by a software on the computer or at Point of Sales (PoS) machine then does it become an e-invoice? Is e-invoice as a system where taxpayers can generate the invoices centrally? - are just some of the questions.

For starters, 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 expectations, which can’t be met from one software generating e-invoices from a portal for the whole country.  Invoices generated by each software may look more or less the same, however, they can’t be understood by another computer system even though business users understand them fully. For example, an Invoice generated by the SAP system cannot be read by a machine which is using the ‘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 they are reported in their respective formats. Hence the need 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 a user would see the physical (printed) invoice or electronic (ex pdf version) invoice. Software would adopt an e-invoice format wherein they would realign 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 their accounting system/ERP or excel based tools or any such tool for creating the electronic invoice as they are using today.

To help small taxpayers adopt the e-invoicing system, the GSTN has empaneled eight accounting & billing software companies who provide basic accounting and billing systems 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 are available online (cloud-based) as well as offline (installed on the computer system of the user). 

To know more about our E-invoicing and GST compliance solutions, contact us here.

Follow our E-invoicing under GST Series on the links below:

1. E-Invoicing Under GST: Part 1 - What is an e-invoice?
2. E-Invoicing Under GST: Part 2 - E-invoicing and the Tax Department
3. E-Invoicing Under GST: Part 3 - Benefits of e-invoicing
4. E-Invoicing Under GST: Part 4 - Documents to be reported under e-invoicing
5. E-Invoicing Under GST: Part 5 - How does e-invoicing work?
6. E-Invoicing Under GST: Part 6 – E-Invoicing Workflow from Supplier to Invoice Registration Portal
7. E-Invoicing Under GST: Part 7 - Workflow from IRP to Buyer and GSTN or E-Way Bill System
8. E-Invoicing Under GST: Part 8 - Everything you need to know about Invoice Registration Portal
9. E-Invoicing Under GST: Part 9 – Features of e-invoice system you need to know
10. E-Invoicing Under GST: Part 10 – How to register your e-invoice
11. E-Invoicing Under GST: Part 11 - Myths around e-invoicing
12. E-Invoicing Under GST: Part 12 – Frequently asked questions on e-invoicing