Third phase of e-invoicing begins; Indian businesses are getting ready for digital future

From April 8, 2021, the government has made Phase 3 of e-challan mandatory for businesses with a turnover of more than Rs 50 crore. Millions of businesses in the country have now adopted this digital reform and in such a situation, the objective of the government is to bring every business under its ambit. In simple words, an invoice read and generated by an electronic machine is called an e-challan. With its help, the provision system like the Goods and Service Tax (GST) portal and e-way bill system helps to work together.

Under the e-challan system, the challan is generated by the Goods and Services Tax Network (GSTN) in a special format within the taxpayer’s accounting and billing system. This data is then sent to the Invoice Registration Portal by uploading a JSON file. This can also be directed using an accounting system and Excel-based offline tools.

Once the IRP gets the invoice data, it will then validate the details like invoice number, type of invoice, GSTIN, tax amount, etc. and if everything is correct then it generates a unique invoice reference number and QR code for the IRP invoice. After this, the IRP will digitally sign the challan and send it back to the taxpayer. Converting this invoice into electronic format and getting registered on IRP is known as an e-invoice.

IRP further forwards this e-challan data to GST and e-way bill system. GSTR-1 returns are filled automatically with e-challan data. If the transporter is informed at the time of e-challan generation, the e-way bill is also auto-generated. Therefore, e-challan is a far-reaching digital transformation for accounting and tax reporting in India.

Its benefits do not end here. The e-invoicing process is a multifaceted improvement, making way for a digital future without manual intervention. Taxpayers in India often face challenges in claiming input tax credit (ITC), receiving payments from debtors, receiving invoices from suppliers on time, and filing GST returns. E-Challan resolves these issues to a great extent.

There is no doubt that GST return-filing will become easier due to the auto-population of data and real-time availability of ITC. Businesses can also receive fast payments from customers as e-invoices can be emailed and follow-up with automatic reminders. Another major benefit is easy access to credit, which can be the result of building a transparent accounting system and eliminating lending in time. Larger organizations would also like to work with small businesses adopting e-invoicing. With all these benefits resulting from e-invoicing, taxpayers now have no reason not to adopt it.

On the other hand, the government has also faced big problems like fake invoices, misuse of ITC, under-reporting of tax and fraud. All these problems will be solved with e-challan. Taxpayers can no longer call the data inaccurate because every figure can be checked. If a business that is eligible for an e-invoice and still creates an invoice without an IRN, then that invoice will not be valid. Businesses will also not be able to transport their goods. By mandating e-challan, the government is ensuring that no fraud can occur as all transactions are reported.

E-Challan will bring a big change in tax compliance. This is the reason why the government is not delaying its implementation nor giving any exemption to businesses. A business that does not follow the e-challan may have to pay a heavy fine of up to Rs 10,000 per challan. The government is very strict to implement this reform, so there will be no possibility of penalties being waived.

If your business falls under step three of an e-invoice, then it is time to have your own accounting system ready for e-invoicing. Using Excel tools can be very time-consuming and there can also be a risk of human errors. Therefore, it would be better to opt for automatic e-challan generation and cancellation. Choose a vendor that provides this feature, as well as automatic updates and 24×7 customer support. If your service provider provides inbuilt recollections with GST returns and e-way bills, this will be an added benefit. Do not wait long. It is time to go digital.