The Impact of India’s New 7-Day Time Limit for E-Invoice Generation on Certain Taxpayers
Recently, the Indian government introduced a new rule that requires certain businesses to generate e-invoices within seven days of issuing a good or service. The aim of this rule is to improve tax compliance and reduce tax evasion. However, this change has caused concern among some taxpayers who fear that the new deadline may negatively affect their operations.
In 2020, the Indian government introduced e-invoicing, a mandate that required certain categories of taxpayers to generate invoices in an electronic and standardized format on the Invoice Registration Portal (IRP). Initially, the mandate applied only to taxpayers with a turnover exceeding Rs. 500 crores. However, the government has now extended the e-invoicing mandate to taxpayers with a turnover exceeding Rs. 10 crores, with a few exceptions.
The e-invoicing process involves the creation of invoices on the taxpayer’s accounting or ERP system, which are then uploaded to the IRP for authentication. The IRP generates a unique Invoice Reference Number (IRN) and QR Code for each e-invoice. The data is then electronically transferred to the GST and e-way bill portals, eliminating the need for repeated data entry.
The process of e-invoice generation varies depending on the type and scale of the business. Larger businesses prefer automated and real-time e-invoice generation either directly on the IRP or through government-authorized GST Suvidha Providers. This is because such automated solutions offer speed and accuracy in generating e-invoices, which is crucial when handling a huge volume of invoices each month. Smaller businesses, on the other hand, generate e-invoices manually or through offline tools, which is a time-consuming and potentially error-prone process.
Up to this point, there has been no time limit for e-invoice generation. Taxpayers had the option to generate e-invoices in real-time or even after a few days or weeks. However, a new restriction has been introduced which imposes a seven-day time limit for reporting invoices to the IRP. This means that e-invoicing-eligible businesses with a turnover of Rs. 100 crore or more must report their invoices to the IRP within seven days of generating them, starting from May 1, 2023.
The absence of a time limit for e-invoice generation has led to some taxpayers backdating their invoices, which is a practice that the government wants to prevent. The new restriction on reporting invoices to the IRP aims to curb this practice and ensure taxpayers report their invoices within a reasonable time frame. The implementation of this new rule will likely help the government track the invoicing practices of businesses more efficiently, prevent tax evasion, and improve compliance.
New 7-day time limit effective May 1
Beginning May 1, 2023, taxpayers with an annual aggregate turnover (AATO) of Rs. 100 crore or more will be required to report invoices to the Invoice Registration Portal (IRP) within a new seven-day time limit. This mandate was introduced to encourage timely compliance and prevent the backdating of e-invoices. It is important to note that this restriction only applies to invoices and not debit and credit notes.
For instance, if an invoice is dated May 7, 2023, the taxpayer will have until May 14, 2023, to generate the e-invoice. After May 14, 2023, the taxpayer will no longer be able to upload and generate an e-invoice on the IRP. The IRP has built-in validations that will prevent the taxpayer from reporting invoices after the seven-day window has passed. Taxpayers who are subject to this mandate must ensure that they report their e-invoices within the seven-day window to comply with the new regulation.
The process of generating e-invoices involves creating invoices on the taxpayer’s accounting or ERP system and then uploading them to the IRP for authentication. Each e-invoice is assigned a unique Invoice Reference Number (IRN) and QR Code by the IRP. The data is then electronically transferred to the GST and e-way bill portals, eliminating the need for repeated data entry.
The method of e-invoice generation varies based on the taxpayer’s type and scale of business. Larger taxpayers typically prefer automated and real-time e-invoice generation directly on the IRP or through government-authorized GST Suvidha Providers. Even taxpayers with a high volume of invoices each month prefer automated solutions due to their speed and accuracy. On the other hand, smaller taxpayers or those with fewer invoices may generate their e-invoices manually or through offline tools, which can be time-consuming and prone to errors.
The lack of a time limit for generating e-invoices prior to this new mandate gave rise to issues such as taxpayers backdating their e-invoices without the government’s ability to track them. By introducing a seven-day time limit for reporting invoices to the IRP, the government hopes to promote greater compliance and accuracy in generating e-invoices.
How does this new restriction impact taxpayers?
The new seven-day time limit for e-invoicing reporting may impact taxpayers in various ways. Large enterprises with multiple branches across the country could face challenges with centralised e-invoicing software. These branches affect sales and issue invoices, with e-invoice generation taking place in bulk at a later date at the head office. However, network connectivity issues in remote locations, a lack of finance teams at each branch, or cost-effectiveness may hinder e-invoice generation at a branch level. The new time limit restriction will create a hassle for such businesses, and they will need to take utmost care to adhere to the seven-day deadline of sharing invoice data with the head office or install e-invoicing solutions at each branch location.
Another challenge may arise when businesses fail to generate e-invoices due to human error or any other reason. Until now, e-invoices could be generated even after a few weeks or a month later. However, with the new restriction, if a business realizes that they have missed generating an e-invoice after the seven-day period has lapsed, the invoice will not be valid without an IRN. Furthermore, these errors may only get detected at the time of GSTR-1 filing, leading to mismatches, as there is no option to generate e-invoices post the seven-day time period. This puts the recipient business at a disadvantage, as the input tax credit will not reflect in their GSTR-2B.
Can taxpayers comply more effectively with a real-time e-invoicing solution?
As the implementation of the new e-invoicing mandate draws near, taxpayers must prepare to comply with this new regulation. Starting from May 1st, 2023, taxpayers must adapt their ERP systems to generate e-invoices in real-time, leaving them with only a few weeks to ensure compliance.
To achieve this, taxpayers must look for integrated and automated e-invoicing solutions that can generate e-invoices in real-time. Such solutions eliminate the need for taxpayers to manually track and identify missed invoices, providing a streamlined process that saves time and effort.
Integrated e-invoicing solutions offer several benefits, including 100% accuracy due to minimal manual intervention, reduced effort in reconciling and filing GST returns and e-way bills, real-time tracking of invoices, and a seamless flow of input tax credit to the recipient business.
Furthermore, these solutions can help taxpayers save on costs associated with manual invoicing processes, such as printing, postage, and storage. With a digital invoicing solution, taxpayers can eliminate the need for physical documents and reduce the risk of errors and inaccuracies associated with manual data entry.
In addition, real-time e-invoicing solutions can provide taxpayers with greater visibility into their invoicing process, allowing them to identify and resolve issues quickly and efficiently. This can help businesses maintain good relationships with their customers and ensure timely payments.
Overall, the implementation of real-time e-invoicing solutions can provide significant benefits to taxpayers, including improved compliance with the new mandate, increased efficiency, reduced costs, and enhanced visibility. As the deadline for compliance approaches, taxpayers should prioritize integrating these solutions into their invoicing processes to ensure a smooth transition and avoid potential penalties for non-compliance.
