The introduction of e-invoicing under the Goods and Services Tax (GST) regime is one of the most significant digital compliance measures undertaken by the Government to streamline indirect taxation in India.
The e-invoicing system was conceptualised with the objective of standardising invoice reporting, curbing tax evasion, reducing fake invoicing and enabling seamless flow of input tax credit.
Over a period of time, the scope of e-invoicing has been expanded gradually by reducing the turnover threshold, thereby bringing a large number of taxpayers within its ambit. At the same time, the law also recognises the practical difficulties faced by certain sectors and grants specific exemptions from compliance with e-invoicing provisions.
The legal basis for e-invoicing is contained in Rule 48(4) of the CGST Rules, 2017. This provision mandates that notified classes of registered persons shall prepare invoices by uploading prescribed particulars in FORM GST INV-01 on the designated Invoice Registration Portal (IRP) and obtain an Invoice Reference Number (IRN).
The invoice generated after obtaining IRN is treated as a valid tax invoice under GST law.
The importance of compliance with Rule 48(4) is further reinforced by Rule 48(5) of the CGST Rules. This rule provides that where an invoice is required to be issued in the manner prescribed under Rule 48(4), any invoice issued without obtaining IRN shall not be treated as a valid invoice.
Thus, for notified taxpayers, generation of IRN is not a procedural formality but a statutory requirement.
Failure to comply may result in denial of input tax credit to recipients, disputes regarding tax liability, and exposure to penal consequences under the GST law.
The provisions relating to e-invoicing were initially introduced vide Notification No. 68/2019-Central Tax dated 13.12.2019. However, the system became operational with effect from 01.10.2020 for registered persons having aggregate turnover exceeding Rs. 500 crores in any preceding financial year. Subsequently, the Government adopted a phased approach by progressively reducing the turnover threshold in order to expand the coverage of the e-invoicing system.
Over time, the threshold underwent several revisions. Initially applicable to very large taxpayers, the requirement was later extended to taxpayers having turnover exceeding Rs. 100 crores, then Rs. 50 crores, Rs. 20 crores, Rs. 10 crores, and finally Rs. 5 crores.
Presently, e-invoicing is mandatory for registered persons whose aggregate turnover in any preceding financial year from 2017-18 onwards exceeds Rs. 5 crores. This reduced threshold became effective from 01.08.2023 pursuant to Notification No. 10/2023-Central Tax dated 10.05.2023, which amended Notification No. 13/2020-Central Tax dated 21.03.2020.
An important aspect of the e-invoicing provisions is the concept of “aggregate turnover”. The turnover threshold is not confined to turnover in the current financial year alone. Instead, if the aggregate turnover of a registered person exceeds the prescribed limit in any financial year commencing from 2017-18 onwards, such person becomes liable to comply with e-invoicing provisions.
Further, aggregate turnover includes taxable supplies, exempt supplies, exports and inter-State supplies computed on an all-India basis having the same Permanent Account Number (PAN).
Once a taxpayer crosses the prescribed threshold, e-invoicing becomes applicable in respect of B2B tax invoices, export invoices and debit notes. However, the provisions do not presently apply to B2C invoices issued to unregistered persons, though dynamic QR code requirements may separately apply in specified cases.
Despite the wide applicability of e-invoicing, the Government has consciously excluded certain sectors and categories of taxpayers from its operation.
Notification No. 13/2020 – Central Tax specifically excludes persons covered under Rule 54(2), Rule 54(3), Rule 54(4) and Rule 54(4A) of the CGST Rules from the requirement of issuing e-invoices.
These exclusions are significant because Rule 54 of the CGST Rules prescribes specialised formats and simplified documentation procedures for certain service providers whose business operations differ from conventional supply transactions. The Government appears to have recognised that imposing IRN generation requirements on such sectors may create unnecessary operational challenges.
The first category exempted from e-invoicing consists of banking companies, financial institutions and Non-Banking Financial Companies (NBFCs) covered under Rule 54(2).
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