The government has been lowering the threshold for eligible entities for e-invoicing in phases, beginning with entities with more than ₹500 crore turnover in October 2020. Now the threshold is ₹10 crore and the new threshold of ₹5 crore will be effective from 1 August, showed an official order from the Central Board of Indirect Taxes and Customs (CBIC) issued late on Wednesday.

Companies have to generate these e-invoices from the portals of either government-owned National Informatics Centre or the portals run by private agencies. The transaction data will then feed automatically into other tax documents like e-way bills needed for goods shipment and the GST returns. This helps in automating the GST return filing process too, leaving little scope for businesses to under-report their sales.

The phased implementation of e-invoicing has resulted in multiple benefits for the entire tax ecosystem which includes improved compliance and increased revenue collections, said Rajat Mohan, partner at AMRG Associates, an accounting firm. Lowering of e-invoicing threshold would extend this to MSME sector and would benefit the overall business ecosystem by reducing costs, rationalizing errors, faster invoice processing and improved compliance in the long term, explain Mohan.

E-invoicing is helping the authorities to check the practice of selling without proper invoices which leads to leakage of tax revenue at the lower end of the supply chain. Since such business-to-business transactions get captured in the GST IT system, these buyers will have to comply with the tax obligations in their subsequent sales to consumers too. This has the potential to give further momentum to the formalisation in the economy.

Gautam Mahanti, business head at IRIS Business Services Ltd. said that smaller taxpayers now need to start getting ready to align their processes and get their invoices registered with the Invoice Registry Portal (IRP) before issuing them to their recipient.

Large businesses that procure goods and services from smaller ones will have to ensure that sellers generate e-invoices, so that they can avail of input tax credit. The increased IT-based documentation will also help trade financing, experts said. 

The move coincides with the government's drive against fake invocing aimed at widening the tax base and at boosting revenue collections.