Guide to India E-Invoicing
E-Invoicing in India
Every year we see new e-invoicing requirements in different countries worldwide. The EU VAT Directive reform has provided the definition of e-invoicing as the authenticity of origin, integrity of content, and legibility of the invoice rules.
However, in India, e-invoicing systems have been at a very basic stage for a while. This is due to relatively low levels of trade liberalization and evolving regulatory and legislative systems.
The first mandatory e-invoicing requirement in the EU was the Business to Government (B2G) e-invoicing, harmonised by Directive 2014/55/EU (e-invoicing Directive), and adopted by most of the EU Member States by the 2020 deadline. Since its introduction, the B2G e-invoicing requirement has been gradually extended to B2B and (in some countries) to B2C transactions.
Following Finance Secretary Ajay Bhushan Pandey’s announcement of mandatory requirements for B2B e-invoicing for large businesses effective from 1st January 2021 (all other businesses from 1st April 2021) the country has caught up with other countries. In less than a year, it has reached a similar level with countries that are further along on their digitalisation journey.
What are the requirements?
Since 1st April 2021, e-invoicing requirements in India concern all B2B transactions. This excludes sectors like banking, airline companies, insurance companies, the armed forces, and telecom service providers.
E-invoices are created by an invoice issuer or by the taxpayer, directly in their accounting system and then they are reported to the GST Invoice Reporting Portal (IRP). This occurs either directly via a B2B API connection or indirectly via the GST Suvidha Provider (GSP).
There must be one simple and permissible connection to the respective ERP systems.
A direct B2B API direct connection is very complex to implement for a business with a medium and high volume of documents. Also, this requires a static Indian IP address and a security audit by a registered agent.
Therefore, the indirect connection via the GSP is used almost exclusively, as it simplifies the entire invoice issuance process.
Once the invoice has been transmitted to the IRP, the platform validates the invoice data, checks the GST system for duplicates, provides a unique invoice reference number (IRN), digitally signs the invoice, and adds a QR code.
The invoice is signed in JSON format and sent back to the issuer. The company’s ERP system is updated with the signed invoice data and the invoice can be sent electronically to the recipient via email. The existing e-waybill system within IRP is also replaced by e-invoicing transmission, so that invoice issuers will not have to generate a separate electronic bill of landing.
India – Similarities with EU e-invoicing
There are more similarities than differences between the Indian e-invoicing system and the EU system. They each involve the transmission of invoice data to a central platform, invoice validation, ERP update, and electronic delivery to the recipient.
After catching up both from a principle and technical perspective, it becomes apparent that India is also not far from implementing pre-filled GST/Tax returns as a next step. This would be done in the same way as it has been done in several EU countries; Italy has already done so; Portugal and Hungary are expected to do so in a short period; whilst France and Germany are looking at implementing an e-reporting system very similar to the Italian Sistema di Interscambio.
The main difference between the e-invoicing system in India and between countries in the EU is that the e-invoice format. India has adopted JSON whilst EU countries mostly use XML. Portugal uses a different format as well as Poland. This may appear to be an immaterial difference.
However, if countries are all working towards combatting fraud and developing a global exchange of tax information, an unharmonized e-invoicing format will become a huge roadblock.
Below is an overview of the differences between India and some EU countries that have implemented or amended their e-invoicing in 2021, continuing their journey towards digitization.
|Country||E-books||E-invoicing (B2B, B2C, B2G)||E-invoice format||E-way Bill||Pre-Filled VAT Return|
|Hungary||Yes||B2B, B2G, B2C||XML schema 3.0 XSD||No||No|
|Portugal||No||B2B, B2G, B2C||UBL 2.1 “CIUS-PT” and CEFACT “CIUS-PT”||Yes||No, currently but expected|
|Greece||Yes||B2B, B2G, B2C||XML, generally, but no legal requirement||No||No|
|Italy||Yes||B2G, B2B, B2C||XML||No||Yes|
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