Compliance updates - India

India uses a clearance CTC model centered around the mandatory infrastructure Invoice Registration Portal (IRP). The gradual lowering of the threshold for electronic invoicing is a means of getting more taxpayers to transmit e-invoices and tax data using IRP.

Since 1 April 2022, taxpayers with revenues of INR 20 crores (ca. EUR 2,4 million) are obliged to issue e-invoices. The new mandate would be the fifth segment of a now 5-part gradual roll-out that started in 2020.

Lowering the threshold amount will also coincide with the Indian Goods and Services Tax Council’s objective to introduce five new IRPs, further expanding the scope and facilitating electronic invoicing for the taxpayers.

On 28 and 29 June, the GST council met for a monthly discussion on collecting higher tax revenues monthly. The premise of adding additional invoice registration portals is to facilitate invoice flow in higher numbers and at greater speeds. Furthermore, the Indian government would like to use this initiative as a means of further shrinking tax revenue leaks.

The Goods and Service Tax Network (GSTN), which manages the GST portal in India from an IT perspective, has contacted four separate companies to develop the new invoice portals. Expanding their number allows a more stable invoice verification and provides variety for enterprises to choose the most effective portal for their needs.

Half of the legally registered businesses in India issued electronic invoices in 2021. With the introduction of more IRPs, the Indian authorities expect to broaden the scope of e-invoicing, promote transparency within billing schemes and curb tax evasion.

Currently, India uses a clearance CTC model centred around the mandatory infrastructure Invoice Registration Portal (IRP). The gradual lowering of the threshold is a means of getting more taxpayers to transmit e-invoices and tax data using the mandatory portal.

Since 1 April 2021, taxpayers with revenues of INR 50 crores (ca. 5,6 million EUR) are obliged to issue e-invoices. The new mandate will be the fourth segment of a now 4-part gradual roll-out, started in 2020.

Pagero has provided additional information regarding India’s e-invoicing mandate requirements in earlier publications.

Read the full announcement from the Indian Tax Authority here.

It may be recalled that implementation of dynamic QR code was mandatory for B2C transactions in respect of companies with over INR 500 crores (approx. 58 million EUR) turnover with effect from 1 December 2020.

The Indian Government had already previously announced a grace period ending on 31 March 2021. This grace period has now been extended by Notification No. 06/2021, which effectively waives fees for non-compliance with the application of QR codes on B2C invoices.

With several factors impacting the implementation of the mandate, here’s a look at the latest developments from the government and why e-invoicing is the first step in bringing real benefits and opportunities for taxpayers in India.

The pressure is on for taxpayers in India

From the Indian government’s sudden changes to e-invoicing legislation to the impact of the global pandemic, taxpayers in India are facing immense pressure to comply and adapt their businesses under unpredictable circumstances.

Extensions to the e-invoicing mandate have given businesses more time to search for and wisely consider investments in solution providers that allow compliant transactions via the GST Invoice Registration Portal (IRP).

Impacts of expanding the mandate scope

From the government’s perspective, expanding the scope of the e-invoicing mandate to include all businesses with an annual turnover of 50cr from 1 April 2021 will result in huge improvements for business-to-business (B2B) tax collection. Beyond that, the audit process is simplified by automating the tax compliance element and enables businesses to process paperless returns. This supports taxpayers in their digital journey by optimising their IT environment.

For taxpayers, implementing e-invoicing helps minimise credit losses, reduce processing times and decrease costs associated with invoicing processes. Replacing manual intervention with automated processes allows taxpayers more time to focus on the core elements of their business. By reallocating resources away from manual tasks, businesses can better manage internal data associated with their invoices and customer relationships.

What should taxpayers be aware of?

Currently, the Indian e-invoicing infrastructure only regulates clearance of invoices via the IRP. With no regulation of invoice distribution between issuer and receiver, post-clearance businesses still have to generate PDF or paper documents.

Enabling the creation of e-invoices is a great step forward in digitialising business document flows. However, until there is a distribution mechanism in place, businesses will not get the full the benefits of digital communication, such as improved efficiency and data accuracy.

There are still certain regulations within the infrastructure that remain unclear, including those surrounding e-signature and invoice triplicate.

Current landscape

The road to implementation was initially bumpy, with a shift in dates and minimum thresholds increasing from 100cr to 500cr. Even so, implementation has been a success so far. Since October 2020, invoice generation has totalled 16.08cr from over 37,000 different taxpayers, with 6.03cr generated in December alone.

Expanding to businesses above 50cr revenue means the volume of e-invoices generated in India is going to grow exponentially. As a strong step forward in digitalising the B2B landscape in India, the threshold will inevitably change throughout the year. Being ready for any possible changes within the infrastructure is vital for all businesses to stay compliant and consistently meet the requirements put in place by the Indian government.

Update on Pagero in India

Pagero went live with our connection to IRP in September 2020, supporting several customers with mandatory B2B e-invoicing in India. Businesses using Pagero’s services can already comply with the extended scope of the mandate without waiting for the official deadlines.

According to Notification No. 05/2021 issued by the Tax Authority, businesses with an aggregated turnover of INR 50 crores (approx. 5,6 million EUR) or more in any of the last three fiscal years will have to adopt e-invoicing starting from 1 April 2021.

Furthermore, as of 1 April 2021, the new Circular No. 146/02/2021-GST mandates taxpayers with an aggregate turnover of more than INR 500 crores (approx. 58 million EUR) to add a QR code in every B2C invoice issued.

In addition, it becomes obligatory to mention a 4 or 6-digit HSN/SAC Code on supply of goods or services tax invoices. This mandate also comes into effect on 1 April 2021, as stated in the Notification No. 78/2020, and lists the following specifications:

• For businesses with aggregate turnover up to INR 5 crores (ca. EUR 582.250), a 4-digit HSN code is mandatory for B2B invoices;
• For businesses with aggregate turnover more than INR 5 crores, a 6-digit HSN code is mandatory for B2B and B2C invoices.

Since 1 January 2021 Indian taxpayers with an annual turnover greater than INR 100 Crores (ca EUR 11.200.000) are required to issue e-invoices via IRP. On 8 March 2021, a notification was published whereby the Indian Government extends the e-invoicing mandate to businesses having an annual turnover exceeding INR 50 Crores (ca EUR 5.600.000), as from 1 April 2021.

This notification means at the same time that the Indian government has changed their previous announcement, that starting from 1 April 2021 all businesses would be required to clear invoices with IRP. Note, therefore, that SMEs are still exempted from the e-invoice clearance obligation.

Agriculture Infrastructure and Development Cess

In order to finance improvement of the agriculture infrastructure, the Agriculture Infrastructure and Development Cess (AIDC) has been imposed on import of specified goods since 2 February 2021.

At the same time, an additional duty of excise on petrol and diesel has been imposed and took effect immediately. To lessen the impact of AIDC levy on these products, a corresponding reduction in duty rates has been proposed.

‘There is an immediate need to improve agricultural infrastructure so that we produce more, while also conserving and processing agricultural output efficiently. This will ensure enhanced remuneration for our farmers. To earmark resources for this purpose, I propose an Agriculture Infrastructure and Development Cess (AIDC) on a small number of items. However, while applying this cess, we have taken care not to put additional burden on consumers on most items,’ — said the Finance Minister in her Budget Speech.

TDS/TCS Rates and Penalties

Tax Deducted at Source or TDS is going to be applied on the purchase of goods at the rate of 0,1%. There will be certain exceptions in cases of the aggregate consideration exceeding INR 50 lakhs and with sales and purchase expenditures constituting more than INR 10 crores (approx. Euro 1,1 million). In the absence of Presence Across Nation (PAN) in India, the TDS-rate is to be increased to 5%.

Furthermore, if the payer is in default on filing their tax return, not submitting it on time, their applicable rates of TDS and TCS (that must be at least 5%) are proposed to increase to double.

Full information about the new Budget can be obtained here.

Find out more how your business can be compliant in India with Pagero.

* Tax Collected at Source

In advance of the Indian e-invoicing mandate, Pagero went live with the connection to the Invoice Registration Portal (IRP). This new service was successfully implemented in September to assist customers in fulfilling e-invoicing clearance requirements in India.

Under the new requirements, all businesses with yearly revenue of Rs 500 crore (approx. 58 million Euros) or more are mandated to start issuing e-invoices from 1 October 2020. The Indian government also announced a grace period for all invoices generated between 1 October and 1 November 2020. In order to maintain the validity of invoices during this period, issuers have 30 days to obtain the Invoice Registration Number (IRN) and will not face a penalty. From 2 November onwards, invoice issuers are required to obtain the IRN and QR code via direct submission to the IRP.

Businesses with an annual turnover exceeding Rs 100 crore are required to issue e-invoices from 1 January 2021. The government’s goal to make e-invoicing mandatory for all B2B transactions starting from 1 April 2021.

Pagero Clearance Service

When a customer is required to issue a valid tax e-invoice, the service automatically sends it first for legal validation to the mandated infrastructure. After receiving the required confirmation, Pagero assist with the delivery of their invoice via electronic means (EDI, Interoperability, etc.), email and/or paper, taking into account business requirements of the trading parties. Full visibility of the process is provided through Pagero Online, and end customers can keep track of the clearance status for each invoice validated and distributed via Pagero.

The new service will allow Pagero to deploy AR and compliance services with greater speed in new jurisdictions implementing e-invoice mandates, based on clearance models.

Earlier in October 2020, the Indian Finance Secretary Ajay Bhushan Pandey announced that issuance of e-invoices via the IRP will become available for all businesses with an annual turnover exceeding 100 crore (approx. 12 million EUR) starting 1 January 2021. He further clarified that the goal of the government is to make e-invoicing mandatory for all B2B transactions starting 1 April 2021. Hence, all transactions must be made via the GST Invoice Registration Portal (IRP) when the government implements mandatory B2B e-invoicing in India on 1 April 2021.

This announcement turned into an official action on 10 November when the CBIC finally confirmed that taxpayers whose aggregate turnover exceeds Rs. 100 crore will be required to implement the e-invoicing mandate starting 1 January 2021.

The mandate currently covers businesses in India with an annual turnover exceeding 500 crore. Banks, airlines, insurance companies, armed forces and telecom service providers are exempt from mandatory issuing of e-invoices.

Requirements for submission of e-invoices

According to the regulations, e-invoices must be issued to the IRP in JSON format. The document can include an e-signature but it is not required. Once the e-document is submitted, the IRP carries out the validation of the e-invoice in order to provide the supplier with a response message. Validation of the document is based on the following parameters:

● Completion of data in all mandatory fields;

● Validity of supplier GSTIN (Goods and Services Tax Identification Number);

● Validity of buyer GSTIN;

● Validity of invoice number and financial year;

● Whether the invoice already exists in the GST system.

If the IRP response is positive, the invoice is digitally signed and assigned a unique number by the IRP. A QR code is also generated in order for the supplier and buyer to confirm authenticity of the e-invoice and proof that it has been registered in the GST system. The IRP then makes the document available to both parties in the GST portal.

If the response is negative, an error message is sent detailing the reason for rejection.

Distribution of e-invoices

After the above steps, the supplier must distribute the e-document to the buyer. Since the distribution between the trading parties is not regulated, the distribution method can be agreed upon between the parties. However, as exempt businesses are not obliged to accept and process JSON e-documents, it is recommended that the supplier be able to either generate PDF invoices or print paper invoices for distribution to such businesses.

Pagero’s solution – How to become and stay compliant

Pagero has an established compliance solution for businesses impacted by mandatory e-invoicing in India.

Issuance with Pagero

• After the file is generated in the existing supplier format, Pagero performs content validation and enrichment as well as converts the file to the mandatory JSON format.
• Pagero submits the file to the IRP, the mandated platform for clearance.
• The IRP replies to Pagero with a receipt including IRN, QR code and IRP e-signature.
• Pagero transmits the document with IRN, QR code and e-signature to the supplier in the supplier format.
• Documents are distributed to the buyer in the previously agreed upon format, including but not limited to JSON, PDF or print.
• Optionally, all relevant documents are archived by Pagero.

Receiving with Pagero

• Once received in JSON or any other agreed upon format, Pagero converts the file into the buyer’s preferred format and performs content validation and enrichment if required.
• Pagero transmits the document in both mandatory and buyer formats.
• Optionally, all relevant documents are archived by Pagero.