New e-invoicing rule to bring 180k more firms into GST compliance fold

Mandatory electronic invoicing of business-to-business (B2B) transactions for companies with annual turnover above ₹20 crore will increase goods and services tax (GST) registrations by 75%, a government official said. 

The new system, which takes effect on 1 April,  will add 180,000 GST identification numbers (GSTINs), up from the existing 240,000, to around 420,000, the official said on condition of anonymity.

Under the GST law, e-invoicing for B2B transactions was first made mandatory for companies with a turnover of over ₹500 crore on 1 October 2020. It was then extended to entities with a turnover of over ₹100 crore from 1 January 2021, and then for those with a turnover of more than ₹50 crore from 1 April 2021.

While 53,523 companies came under the GSTIN ambit  in October 2020, 91,583 GSTINs were added in January 2021, and 95,461 in April 2021, taking the total number to 240,567. GST collections breached the ₹1.3 trillion mark for the fourth time during 2021-22 in January. 

“Widening the scope to cover small and medium entities will not only help expand GST coverage, but plug the leakages. This will  further bolster GST collections,” he said seeking anonymity. “Currently, there are about 240,000 eligible GSTINs for over ₹50 crore annual revenue threshold. We hope to add at least 75-80% more by lowering the threshold to ₹20 crore in April. E-invoicing has helped improve compliance, which is visible in robust GST collections. It also helps prevents tax evasion.”

A company can have more than one GSTIN, if it runs a business in two or more states, or Union territories, or the registration process involves multiple business verticals in a single state. “E-invoicing allows real time tracking of invoices prepared by a supplier, reducing scope of frauds. The practice of evasion by small and medium enterprises, will stop now,” said another official, also requesting anonymity. “It will reduce the manual reporting process, thereby the scope of manipulation of invoices, and will ensures only genuine input tax credit can be claimed.” 

Archit Gupta, founder and chief executive, Clear, a fintech software-as-a-service platform, said: “E-invoicing is the ultimate digital leapfrog for Indian businesses that have embraced digital payments so well. This will also help them comply digitally and will be a key driver for their growth.”

While there are around 220,000 companies with an annual turnover of between ₹20 crore and ₹50 crore, financial institutions, such as insurance, banking and non-banking financial companies, and goods and passenger transportation services, besides units operating in special economic zones, are exempt from e-invoices. 

Queries emailed to spokespersons of the finance ministry and the Goods and Services Tax Network remained unanswered till press time. The e-invoicing mechanism helps improve compliance and transparency in sales reporting, minimizing errors and mismatches, and automating data entry.