E-invoicing to pave the path for India at 100’s economic resilience

GST collections jumped 10 per cent to about Rs 1.64 lakh crore in December. (Image/Freepik)

By Yashraj Vakil

Paper-based manual accounting and financial processes have posed enduring challenges to the growth of MSMEs. However, within the core of India’s digital transformation lies a nuanced yet impactful revolution — the widespread adoption of e-invoicing.

This change, extending beyond mere technological shifts, fundamentally reshapes the interplay between transactions and compliance in MSMEs. This evolution is a significant leap towards modernisation in a nation where small businesses constitute the economic backbone. E-invoicing is pivotal in facilitating more streamlined processes, fostering alignment with global standards, and ultimately elevating the competitiveness of Indian businesses.

The essence of E-Invoicing

The e-Invoice System mandates GST-registered businesses to upload all their B2B invoices on the GSTN portal. Businesses must follow a pre-designated format for GST invoices. Once the invoice is authenticated on the e-invoice portal, it generates and returns a unique Invoice Reference Number (IRN), digitally signed e-invoice and QR code to the user. In addition to the GSTN, four private Invoice Registration Portals (IRP) in India provide e-invoicing services.

Government’s role in streamlining businesses

The introduction of e-invoicing under GST clearly shows the government’s commitment to simplifying the tax system while promoting a more digitally inclusive India. The government took a phased approach – giving time for MSMEs to learn and adapt to change.

The first phase kicked off on October 1, 2020, targeting the big players with a turnover above Rs 500 crore. Then, on April 1, 2021, mid-sized businesses with turnover above Rs 50 crore hopped on board. The government then roped in MSMEs, starting with those crossing the Rs 20 crore turnover mark in the fourth phase. Phase five broadened the coverage to MSMEs with turnover exceeding Rs 10 crore. In the latest move from August 1, 2023, businesses with a turnover more than Rs 5 crore included over four crore MSMEs into the e-invoicing fold.

Navigating challenges and unlocking potential

While embracing e-invoicing introduces challenges such as system upgrades and staff training, the potential rewards are substantial. This transition improves cash flow, enhances financial health, leads to better compliance, and strengthens business relationships. Taking Latin America as an example, Chile pioneered this shift in 2003, transforming the region’s credit flow through invoicing-backed factoring. According to the Factoring Chain International (FCI) 2023 report, the region contributed 3% of the total world factoring volume, amounting to €124 billion, and witnessed a significant increase of over 44%. Chile, Brazil, and Mexico primarily drove the growth.

In addition to bridging the credit gap for India, e-invoices will also serve as digital validations, ensuring seamless data exchange between businesses and the GST Network. This has the potential to streamline the ongoing Input Tax Credit (ITC) claim process for MSMEs, adding a layer of transparency and organising financial operations for sectors with intricate supply chains, thereby reducing reconciliation issues.

Beyond efficiency gains, adopting e-invoicing can empower MSMEs to identify and combat fraud, safeguarding their business interests. Lastly, e-invoicing contributes to environmental sustainability by reducing paper usage, aligning with global efforts toward eco-friendly business practices.

Looking to the future

Dheeraj Rastogi, the Executive VP at GSTN, recently mentioned that with the implementation of the latest phase, over 10 crore businesses are expected to churn out over 65 lakh invoices daily. The government may lower the threshold to include smaller businesses with a turnover of Rs 1 crore to Rs 1.5 crore in the e-invoicing landscape. Over the next 2-3 years, the government will likely make e-invoicing mandatory for B2C transactions.

MSMEs are diving deeper into e-invoicing, reshaping the economy to be more agile, responsive, and innovative. We’re looking at new business models and opportunities coming into play. E-invoicing is the game-changer, fostering robust data analytics, smarter decision-making, and a more organised market. It’s a testament to India’s digital commitment. These shifts promise a resilient business environment, paving the way for a thriving India@100 marked by growth, innovation, and resilience.

(The author is CEO, CaptainBiz. Views expressed are personal and not necessarily that of financialexpress.com)