After GST, electronic invoicing or e-invoicing has probably been the biggest tax reform in India. While larger private firms have led the e-invoice adoption in the country due to its extensive benefits, how has this new invoicing system impacted SMEs? Read this post to find out.
Electronic invoicing or e-invoicing has been adopted by the Indian government to avoid tax evasion. In May 2019, the government set up a committee for discussing the usability of e-invoice.
Multiple drafts were created, and the new invoicing system was finally introduced in January 2020. While e-invoice was to be made mandatory from April 2020, the adoption was pushed to October 2020 due to the pandemic. The implementation started with companies with an annual turnover of more than Rs. 500 crores
From January 2021, e-invoice was made mandatory for companies with an annual turnover of more than Rs. 100 crores, followed by companies with a turnover of above Rs. 50 crores in April 2021. While larger private firms led the adoption of an electronic invoice system in India, many SMEs are struggling with its implementation.
Here are some of the ways in which e-invoicing is impacting SMEs-
1. Increased Compliance Burden
According to studies, there are around 5,000 medium enterprises, 3.31 lakh small businesses, and 6.30 crore micro enterprises in India. While the government has been pushing digital reforms since 2015, most SMEs have been using manual invoicing methods. They need to overhaul the entire invoicing process and hire manpower with IT knowledge to comply with the new reform.
With SMEs across most industries already struggling due to the pandemic, they might want to delay employee training and accounting software up-gradation for e-invoicing as long as possible.
2. Transparency and Uniformity
One of the objectives of e-invoicing is to encourage smaller businesses from the informal economy to be a part of the larger formal economic structure. The government has been launching several schemes to help small businesses across sectors. However, most small and micro enterprises cannot take advantage of these initiatives due to the informal nature of their operations.
Before e-invoicing, there was no standard invoicing format. E-invoicing has not only introduced a standard invoice template but also made it necessary for smaller businesses to report their invoices to the government. Apart from improved transparency and uniformity, this is also helping smaller businesses to join the formal economy and be eligible for government policies.
3. Improved Reconciliation Process
Human errors in filing returns or generating invoices can have severe financial consequences. With e-invoice, the invoices are integrated with e-way and the GST portal to eliminate the need for duplicate reporting. This helps in minimizing human errors and avoiding their severe outcomes.
Moreover, with the new system in place, businesses no longer need to reconcile their e-way bills, GSTR-1, and GSTR-3B, manually. This not only makes the reconciliation process easier for the SMEs that often lack the required manpower but also helps the government to assess their operations.
Automated Compliance with E-Invoicing Software
SMEs struggling with e-invoice adoption can consider investing in a reputed invoice software to automate the billing process. With features like automated data extraction from account systems, real-time QR and IRN generation, invoice cancellation/amendment, and transaction reconciliation, the software solution can make it easier for smaller businesses to adopt the new electronic invoice system.
Advisory firms offering feature-packed e-invoice solutions also provide the required training and assistance to accelerate e-invoice adoption and ensure that businesses comply with the new regulations at the earliest.