How does e-Invoice System Works

Yarab A | Feb-25-2020

With e-invoice concept being notified and expected to be introduced by 1^St October,2020, how does e-invoice system works is the question of the hour. In simple words, e-invoicing is a system through which business to business (B2B) transactions are authenticated electronically by GSTN for further use on the common GSTN portal.

In the processed system, the moment you create an invoice for your customer, it should be uploaded to IRP (Invoice Registration Portal) where the validation will be done, and a unique number called IRN (Invoice Reference Number) will be issued.  

An invoice remains valid only if it has IRN and it is validated by the IRP (Invoice Registration Portal). Here IRP is a designated portal designed to accept, validate and authenticate the invoice

Know more on IRN, Format and ways to generate it

In contrast to the current system of GST which requires only the details of invoice to be uploaded periodically in GSTR-1, the proposed system requires you to upload and get the invoice authenticated by the IRP system.  Without further ado, let’s understand how e-invoice system works?

How does e-Invoice system work?

For us to understand the workflow of the e-invoice system, it is important to know the participants of the system. The key participants of e-way bill system are represented in the below diagram along with their interaction.

As depicted in the above diagram, the workflow of the e-invoice system can be categorized into 2 parts. First is the interaction between the business (supplier in case of invoice) and the Invoice Registration Portal (IRP). The second part is the interaction between the IRP and the GST/E-Way Bill Systems and the Buyer.  Let’s now understand the e-invoice system in detail.

The above illustrative diagram on e-invoice system is explained below

• The supplier generates the invoice JSON from ERP software
  
  
• The JSON is uploaded to IRP (Invoice Register Portal) by the supplier
  
  
• IRP Validates the JSON generated by the ERP Software
  
  
• On successful validation,  IRN is generated. Also, the invoice is digitally signed and QR code is added by IRP
  
  
• The digitally signed e-invoice JSON along with QR code will be sent the seller
  
  
• The signed e-invoice data along with IRN (same JSON data returned by the IRP to the seller) will be sent to E-Way Bill System and to the GST System
  
  
• Using the JSON data received from IRP, the e-invoice system will auto-populate the Part-A of e-way. Provision has also been made to enter transporter code and vehicle number, if available with the seller at the time of generation of e-invoice. In such a case, the e-way bill will be created automatically, and e-invoice data will  capture e-way bill number
  
  
• Similarly, GST system will auto-populate Annexure-1 (outward supplies) and Annexure-2(Inward supplies) under GST System
  
  
• Buyer will get real-time visibility in Annexure -2 for confirming the ITC of the invoice uploaded by the supplier

With nearing deadline of implementing e-invoicing, it is a necessity for the business to have an accounting or ERP software which will help sail smoothly on the highways of GST Taxation. While the applicability of the e-invoice is for the business more than 100 crores currently, the long-term vision of the council is to implement the new e-invoicing system for all taxpayers irrespective of turnover limit criteria.