India to improve tax compliance by widening e-invoicing scope

The finance ministry in India has made e-invoicing or real time reporting of business-to-business sales, in a designated portal, compulsory for all entities with more than INR 20 crore annual sales, according to Mint.

At present, e-invoicing is compulsory for those with INR 50 crore or more sales. The change, applicable from 1 April 2022, indicates a massive scale up of the reporting requirements which is expected to address tax evasion among small businesses, a weak point as far as tax compliance in the country is concerned.

With business-to-business transactions of these entities getting captured at the e-invoicing portal run by the National Informatics Centre, it will become difficult for them to under report their final sales. This is expected to tackle the practice of issuing informal sales invoices or ‘kacha bills’ that is prevalent among some businesses, especially in sectors offering high margins.

The official order issued by the ministry said that the decision has been taken on the recommendations of the GST Council. The authorities have been gradually deploying all the technology enabled self-policing features of the new indirect tax system to improve tax compliance.

Many suppliers would be required to raise e-invoices with effect from 1 April 2022 and if the invoice is not valid invoice, input tax credit on the same cannot be availed by the recipient beside applicable penalties, said an analysis by EY. This amendment seems to be in line with the government agenda of a digital economy.

Experts also said that the lower threshold of e-invoicing will encourage small businesses to embrace technology in issuing invoices. 

The development shows that the idea of formalising the economy through GST, which initially faced a backlash from traders and small firms, is now reaching the final stage. The tech enabled compliance enforcement has already contributed to higher GST return filing and improved revenue buoyancy.