Applicability of e-Invoicing under GST on Reverse Charge Mechanism

Applicability of e-Invoicing under GST on Reverse Charge Mechanism

Introduction

e-Invoicing has implemented and is applicable to mostly B2B Invoices for large enterprises as of now.

However, e-Invoicing & reporting of documents, is not limited to B2B invoices but is also applicable to documents like B2G Invoices, Export invoices, RCM Invoices, Credit Notes & Debit Notes.

Soon e-Invoicing will also cover the reporting of B2C Invoices to the IRP as well.

In this article we have explained the working of e-Invoices on Reverse Charge Transactions where the recipient of goods is liable to pay the taxes directly to the Government.

How & who is required to generate e-Invoices and how will the entire e-Invoice compliance work for RCM transactions is what we have discussed in this article.

Towards the end of the article you will discover which is the best e invoicing software, so read till the end!

Introduction to e-Invoicing under GST

e-Invoicing or Electronic Invoicing under rule 48 of the CGST Act is an electronic method of generating & operating B2B invoices& other relevant documents.

e-Invoicing under GSTis applicable to all businesses having an annual aggregated turnover of INR 500 Crores & above for now but will soon apply to all the businesses as per the Government’s plan & notifications that have rolled out indicating the same.

Under e-Invoicing, businesses are required to generate their invoices in the specified SCHEMA Format through their ERPs & upload them on the IRP for validation.

The IRP will validate the e-Invoices for errors & duplications of any sort & will revert an error file incase of errors.

However, upon successful validation, the IRP will generate a unique IRN & QR Code for the e-Invoice that will be used as its identity.

The user can then download the e-Invoice from their & put it to further use. This process must happen in real-time that is, on or before the actual time of the transaction.

The IRP will also share the e-Invoice data with the e-Way Bill & the GST Portal, as well as with the recipient of the e-Invoice in real-time, reducing a lot of your work.

A walk through the Reverse Charge Mechanism Lane

Reverse Charge Mechanism or RCM is not a new term in GST.

It may not be new but RCM still remains to be one of the most complex yet essential branches of GST.

So let us take a quick a shot walk through  Reverse Charge Mechanism under GST.

Reverse Charge Mechanism is a mechanism that has been put in place to deal with special cases where the supplier of the goods is a non-registered person.

A non-registered person does not file his GST returns & thus cannot release the tax liabilities, in this case the responsibility shifts to the recipient of the goods, who must be a registered person under GST.

The supplier will generate a bill of supply &will collect the payment amount exclusive of GST from the recipient.

The recipient will then have to generate self-invoices & release the (GST) taxes on behalf of the supplier under Reverse Charge Mechanism, directly to the Government via form GSTR-1 & GSTR-3B.

Although, RCM is also applicable on certain goods & services that are specified by the Government. Click here to know everything about RCM & its applicability.

Note- The recipient of the goods is eligible to claim the ITC on RCM transactions, through form GSTR-3B.

Note- You cannot utilize ITC to pay the taxes under RCM, you will have to pay the taxes through the Cash ledger & later you can claim the ITC on the same.

Reverse Charge Mechanism & e-Invoicing

e-Invoicing will apply to transactions that fall under Reverse Charge Mechanism under GST.

The supplier of the goods & services will be required to generate the IRN for the invoices.

But how is the same possible when the supplier is an unregistered person?

Here is the drill, RCM is not only applicable to the case where the supplier is an unregistered person, it applies to other cases as well. Let us see what these are-

  1. When the Supplier is an unregistered person
  2. List of goods & Services specified by the government to mandatorily fall under RCMunder section 9(3) of CGST Act, 2017
  3. Services through e-Commerce Operators

The applicability of e-Invoicing to these three cases is different, here is a breakdown of the application of e-Invoicing on the cases-

  1. When the Supplier is an unregistered person- If the supplier is an unregistered person under there is no way they can register on the IRP & generate an e-Invoice as the same required a GSTN. Additionally only the supplier can generate the IRN. So in this case, e-Invoicing will not be applicable & there is no requirement to generate an IRN.
  2. List of goods & Services specified by the government to mandatorily fall under RCM under section 9(3) of CGST Act, 2017-In this case if the supplier of such goods & services is eligible to e-Invoicing then they will have to generate IRNs for the RCM Invoices. In other words when businesses having an annual aggregated turnover of INR 500 Crores & above supply the goods & services liable to RCM then they will have to generate an IRN for their invoices.
  3. Services through e-Commerce Operators-As e-Commerce Operators pay taxes as if they are the suppliers, they are required to generate IRN for their invoices. Meaning e-Commerce Operators are liable to e-Invoicing & generating IRNs.

There are mandatory & optional field in the schema for declaring the RCM invoice details & to generate an RCM e-Invoice, click here to see the SCHEMA Format.

Conclusion

We hope the article helped you understand the applicability of e-Invoicing on RCM invoices.

The provision is a bit complex but the same has been mandated by the government & all businesses must understand & comply with the same.

So, we know that e-Invoicing compliance is of high priority for all businesses that are liable to it irrespective of its impact as it is mandatory, but is also complex.

It can sometimes be a little bit difficult than it seems considering the complex SCHEMA Format, Real-time Validation, Bulk operations & more.

The Government also recommends the use of external e-Invoicing solution such as GSPs to comply better with e-Invoicing, one such GSP is GSTHero which is also the best e-Invoicing Solution in the market currently.

GSTHero makes e-Invoicing simple to understand & operate with its user-friendly features & prominent support.

So why GSTHero?

  1.  Simple integration
  2. Data Security
  3. Direct integration with the IRP
  4. Scalable for high data volume
  5. Highly Automated- requires minimal human input
  6. Reduced Errors with automation
  7. Enhanced productivity of your accounts team
  8. Compliance in real-time 
  9. Bulk Operations- Generate, cancel, print, validate & edit e-Invoice in bulk within the ERP  
  10. Achieve 100% Compliance with e-Invoicing
  11. Cost-effective 
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