The Government of India has recently lowered the threshold for producing an e-invoice in Business-to-Business (B2B) transactions from Rs 10 crores to Rs 5 crores. This change aims to reduce tax evasion and increase compliance under the Goods and Services Tax (GST) Regime. Along with this, the government has introduced the Automated Return Scrutiny Module (ARSM) for scrutinising GST returns.
The Automated Return Scrutiny Module Explained
The ARSM is an essential part of the ACES-GST backend application designed to identify risks and discrepancies in GST returns using data analytics. The module aids tax officers in examining the GST returns of centre administered taxpayers selected based on the system’s identified risks. It also generates alerts for any detected non-compliance. As of now, it has already started scrutinising GST returns for FY 2019-20.
The Concept of E-Invoicing Under GST
E-Invoicing is a system where B2B invoices and other documents undergo electronic authentication by the GSTN (Goods and Service Tax Network), to be subsequently used on the GST portal. It works by submitting standard invoices on a common e-invoice portal, automating the reporting process, while eliminating manual data entry during return filing and e-way bill generation. Approved by the GST Council in its 37th meeting, e-Invoicing aims to enable interoperability across the entire GST ecosystem. The implementation of the e-invoicing system is expected to curb fraudulent activities, tax evasion and reduce the number of frauds by giving real-time access to data to the tax authorities.
The Significance of Reducing the Threshold for E-Invoicing
When more businesses, especially small and medium-sized enterprises (SMEs), are required to undertake e-invoicing, it boosts GST revenue collections, curbs tax evasion and expands the GST tax base. Requiring businesses to adopt e-invoicing also aims at reducing mismatch errors and mitigating the risk of fraudulent activities associated with fake invoices.
Concerns Related to the Change in E-Invoicing Requirements
With lowering the threshold for e-invoicing, SMEs may face challenges adapting to new requirements and investing in necessary technology, increasing their compliance costs and burdening their cash flows. Furthermore, there may be issues regarding the capacity and preparedness of the GST Network (GSTN) to handle an increased load of e-invoices generated by a larger number of taxpayers. This could lead to technical glitches and delays in invoice generation which could impact business operations adversely.
Other Measures to Prevent Tax Evasion
Along with the introduction of the e-invoicing system, the government has implemented several measures to curb tax evasion, including The Fugitive Economic Offenders Act (2018), The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (2015), and the Prevention of Money Laundering Act (2002).
Few Suggestions for Streamlining the Transition
To ease the transition to the new system, the government can provide support to SMEs by offering training and resources. Furthermore, assuring businesses about data security and privacy can make them more comfortable with real-time data sharing. Lastly, since e-invoicing currently applies only to B2B invoices, separate workflows should be put in place for delivery challans, bills of supply, job work, and other similar transactions to ensure seamless integration.