E-invoicing and ITC Claim: Positive Impact of E-invoicing on GST Reconciliation & ITC

E-invoicing and ITC Claim have got interconnected since the introduction of the e-invoicing mandate rolled out in October 2020.

The present e-invoicing turnover limit requires taxpayers with turnover above Rs. 10 Cr to register their sales invoices with Invoice Registration Portals (like IRIS IRP) and obtain a unique Invoice Reference Number (IRN) along with a QR code before sharing it with the purchaser. And purchaser has to ensure that the invoice received has the QR Code printed on it, as now, invoices with an IRP-authorized IRN and digitally signed QR Code will only be considered as valid.

As a compliance task, the generation of invoice is responsibility of the supplier and reconciliation of the invoice with purchase data is recipient’s responsibility for accurate ITC claim. Thus, the underlying document for ITC claim is the invoice generated and uploaded by the supplier on the GST system.

E-Invoicing and ITC Claim – Positive Impact

With e-invoicing coming in play, it has a direct impact on GST reconciliation and ITC claim as henceforth, ITC will be available only on IRP-generated invoices.

Here are 5 ways in which e-invoicing and ITC Claim will get interconnected and e-invoicing will help in faster and better GST reconciliation and hence efficient ITC claim

1. Real-time availability of e-invoice for ITC Claim

Under the E-invoice mandate, e-invoice needs to be generated before the document is shared with the customer, thus making it a transactional level compliance. Hence, suppliers need to send the invoice data to IRP, get IRN and QR Code in return and print this QR Code on the invoice before it is issued. Hence, every invoice issued under e-invoicing is available in system real-time. This data is available for purchasers to view.

Thus businesses can define process to reconcile their records with invoice data as soon as the e-invoice is made rather than waiting for the invoice data to be made available via GSTR 2B.

2. E-Invoice is not just document but interoperable data set

E-invoice is a not only a process change but also form change. The invoice which was previously available as a physical copy or pdf has now transformed to data set of relevant values. Thus, one can start looking at invoice being available as data rather than as a document.

Once the e-invoice is generated, the supplier can exchange the complete e-invoice data with the recipient digitally. This exchange can be completely automated with IRP (Invoice Registration Portal) acting as facilitator in between. Suppliers can thus feed the e-invoice data directly into the recipient’s systems. The purchase ledgers get auto-populated and reconciliation activities can be started earlier.

3. Standardized information from all vendors

Everyone covered under the E-invoice mandate need to follow the same e-invoice standard. The structure of IRN and B2B QR code format is also the same for any e-invoice.

This standardization will address the inefficiencies of extracting the data from the vendor-specific documents before it can be reconciled. Time and cost savings due to the standard e-invoice processing can be significant.

4. Better invoice matching in GST Reconciliation

Currently, matching the invoices in purchase registers with GSTR 2A and GSTR 2B which also has ITC related computations, is a critical activity that taxpayers need to do for maximizing ITC claim. Businesses usually use invoice number, invoice date, and GSTIN of the counterparty as the common factor between two data sets to identify comparable invoices. The matching of actual data is the next step once comparable invoices are found.

One of the biggest challenges in GST reconciliation has been to identify the comparable invoices because of manual or recording errors in capturing invoice number etc in 2 different data sources- supplier and recipient. This will change with e-invoicing coming into play.

Under e-invoicing, once the supplier generates e-invoice from any of the IRP, IRPs need to send e-invoices generated by them to the GST system. The auto-population of GSTR 1 for supplier and GSTR 2A/2B for the recipient will be done post receipt of data from IRPs by the GST system. If this e-invoice data can be directly pushed in purchase ledger, comparable invoices can be found easily and scope of data discrepancies get reduced. This is where Private IRP like IRIS IRP can help.

5. Proactive issue resolution leading to faster turnaround time

The goal of GST reconciliation is to identify gaps and resolve the issues so that ITC claim can be maximized. With availability of e-invoice data real-time, internal checks can be setup to provide for faster processing of invoice reconciliation. Thus any discrepancies which can put ITC at risk such as mismatch in tax amount or POS (place of supply) etc can be reported to the supplier immediately.

There is a window of 24 hours to cancel the e-invoice. Identifying and communicating issues early enough will help to take corrective actions and ensure ITC is claimed in the same period.

E-Invoicing and ITC Claim – Blind spots to take care of

While the internal systems need to get updated to store IRN, other business functions including GST reconciliation, Accounts Payable and Receivables process and comparison could become better because of the availability of standard e-invoices from all vendors to whom e-invoicing rules are applicable.

However, there are certain aspects to keep in view while incorporating e-invoices in existing reconciliation

1. Handling suppliers who are out of E-Invoice mandate

The government has introduced the e-invoicing mandate in a phased manner. As per the recent notification, businesses with over above ₹ 10 cr need to be e-invoice compliant. With private IRPs coming into the play, it would be sooner than later when all GST registered businesses would be covered in e-invoicing. Up until then, there could be a possibility that some of your suppliers may not be under e-invoice mandate. For such suppliers, above listed benefits will not accrue.

2. Handling transactions other than B2B, CDN etc

The E-invoice data gets populated in GSTR 1 for the supplier from where recipients GSTR 2A/2B is prepared. There are other sections in GSTR 1, such as B2C, Nil where the supplier may want to provide details.

3. Editable GSTR1:

GSTR 1 is still open for edits. If any of the auto-populated sections are re-uploaded by supplier, the e-invoice IRN gets removed. In such cases, IRN will not be available in GSTR 2A/2B. Recommended to check such invoices to ensure no data in the invoice is updated while re-uploading.

Applicability of e-invoice mandate will expand to cover more businesses and also more transactions. It is important that you are all geared up and ready to make most out of e-invoicing, for both your sales as well as purchase cycle.

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IRIS is now a GSTN Authorized IRP (Invoice Registration Portal). IRIS IRP has been developed by the makers of IRIS GST, a business line of IRIS Business Services Limited, one of the few authorized GSPs chosen in the first round of selection by GSTN in 2017. At IRISGST, we believe that the implementation of GST and now e-invoicing will play a pivotal role in crafting the technological advancement of any business.