How will the E-invoicing of more than 5 crores change the retail industry and small shops?

E-invoicing was introduced under the Goods and Services Tax (GST) to simplify the process, maintain regular records, avoid tax evasion, and ensure all registered taxpayers comply with the rules of the GST. E-invoicing was introduced in 5 phases until now. But recently, on 10th May 2023 GST department came up with a notification 10/2023 introducing the fifth phase of electronic invoicing, which will come into effect from 1st August 2023.

Phases of Implementation:

Phase 1: E-invoicing became mandatory for businesses making an annual turnover of more than Rs. 500 crores. This phase came into effect on 1st October 2020.

Phase 2: After phase 1 success, the GST department thought of bringing phase 2 to systemize the working of GST. In phase 2, E-invoicing became mandatory for businesses making an annual turnover of over Rs. 100 crore, and it came into effect on 1st January 2021.

Phase 3: To create a robust system, it was necessary to target MSMEs and make sure they comply with the rules resulting in the third phase, making it mandatory for businesses exceeding annual turnover of Rs. 50 crore to generate an e-invoice with effect from 1st April 2021.

Phase 4: Again reducing the business’s annual turnover to Rs. 20 crores, it became mandatory for such businesses to file for e-invoicing effective from 1st April 2022.

Phase 5: With an intention to ‘make it all digital’, the GST department made it mandatory for e-invoicing for businesses making more than Rs. 10 crores annually. This was the latest announcement before phase 6. This was brought into effect on 1st October 2022.

Phase 6: Finally, on 10th May 2023, GST came up with a new phase making e-invoice a compulsion for businesses making more than Rs. 5 crores annually. Notified to be effective from 1st August 2023.

Understanding the E-invoicing system:

For all the transaction any companies make following documents in the form of e-invoicing are to be generated:

• Tax Invoice
• Debit and credit notes
• Invoice cum Bill of Supply (Not Mandatory)

This e-invoicing system applies to:

• Taxable B2B supply of goods or services
• Business to Government supply of goods or services
• Exports
• Transactions covered under Reverse Charge Mechanism (RCM)

E-invoicing in Retail:

Many taxpayers need clarification in regards to generating an e-invoice for the supply made in B2C, i.e., business-to-customer transactions. Many taxpayers believe that malls/retail shops do not have to generate e-invoices, which is ‘not correct’. Most of the sale from retail shops is made to consumers (for which e-invoice is not compulsory). Still, many of the shops also sell to a person holding GSTIN, and for such transactions, e-invoicing is mandatory because it becomes B2B, i.e., business to business. However, if such malls/shops fall within the aggregate limit of e-invoice generation, it becomes mandatory to generate e-invoices.

Usually, the e-invoicing system software is covered with accounting software, and invoices are raised based on the purchase order received in accounting. However, this shall not be possible for the retail trade billing because the invoice has to be generated on the immediate purchase of the customer, and that too considering all the compliance and without any error.

Many experts believe that government may not extend e-invoicing to retailers as it becomes quite difficult to evaluate such records, and maintaining compliance for this can be challenging. By implementing the 6 phases, GST authorities have already successfully brought a big chunk of economic activity under their control. This will help them to curb tax evasion and wrongful claim of ITCs.

However, if the accounting software is linked with the e-invoicing software, it would be viable for the portals to generate invoices in seconds. If the system is automated, the authorities can also plan for mandating e-invoices for the B2C portals.

Non-Compliance Actions:

• Non-compliant businesses will be charged a Penalty for non-generation of e-invoice – 100% of the tax due or Rs. 10,000, whichever is higher for every invoice.
• The business cannot claim ITC if they have not generated an e-invoice even after falling within the threshold limit.
• If the Invoice Reference Number (IRN) is not generated, it will be considered an incomplete invoice, and a penalty of Rs. 25,000 will be levied for each such invoice.

Points to be noted:

• The e-invoice government portal needs to save the invoice generated through it. Hence, make sure a separate record of all this is maintained in other software.
• E-invoice, once raised, cannot be modified. One can cancel the same within 24 hours of its issue.
• The turnover limit should be verified, and if any business has crossed the limit, make sure you check your threshold limit and then comply.

Impact of E-invoicing on Retail Trade:

Streamlining Processes and Reducing Costs

E-invoicing offers the advantage of streamlining processes and reducing costs. Unlike traditional manual data entry methods, e-invoicing automates invoice generation, sending, and processing. This automation saves time, reduces errors, and decreases the resources required for invoicing tasks, resulting in cost savings for retailers and suppliers.

Enhanced Efficiency and Faster Payments

E-invoicing enables real-time transmission of invoices, leading to faster processing and payment cycles. In contrast, traditional invoicing methods can suffer from delays caused by postal delivery or manual handling. By implementing e-invoicing, businesses expedite the invoicing process, improving cash flow and minimizing the risk of late payments. Small shops, in particular, benefit from timely payments as they often operate on tight budgets and require efficient cash flow management.

Increased Accuracy and Data Integrity

Manual data entry in traditional invoicing increases the chances of errors, which can cause payment delays and disputes. E-invoicing eliminates the need for manual data entry as invoice information is electronically transferred between systems. This automated process ensures a higher level of accuracy, reducing the likelihood of invoicing errors. Additionally, standardized formats enhance data integrity, allowing seamless integration with accounting systems and reducing the need for manual reconciliation.

Improved Compliance and Reduced Tax Evasion

Many countries, including India, have made e-invoicing mandatory for businesses with a turnover exceeding 5 crore. This regulatory requirement aims to combat tax evasion and promote transparency in financial transactions. By implementing e-invoicing, retailers can efficiently comply with tax regulations as the system automatically captures invoice data and reports it to the relevant tax authorities. This helps reduce the scope for tax evasion and ensures fair competition among retailers.

In conclusion, e-invoicing for businesses with a turnover exceeding 5 crores brings numerous benefits to the retail industry and small shops.