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India - Clearance Solution
Created on 2020-09-07 11:13:36; Last updated on 2022-01-18 03:00:22
The Indian GST Council has announced amendments to the existing GST legislation framework. Starting the 1st of October 2020, the Indian government will enforce an invoice reporting mandate for businesses with an annual turnover above INR 500 Crores (Approx.$67M), for all their B2B, B2G and Export transactions. These introduce the principle that an invoice is only considered valid if it contains an Invoice Reference Number (IRN) and QR code.
From 1 January 2021, the compliance threshold was reduced to INR 100 crore.
Starting from 1 April 2021, it has been formally announced that e-invoicing will become mandatory for companies with a turnover of > INR 50 crore (equivalent to around USD 7m) or more.
Starting from 1 July 2021, the Finance Act, 2021-22 has brought in a new requirement under Section 194Q of the Income Tax Act, 1961 for a buyer to implement Tax Deducted at source (TDS) on purchase of goods, at the time of credit to the party account or payment whichever is earlier, if the value of purchases in a Financial Year exceeds Rs. 50 lakhs (approx. $75k).
Further, Section 206C(1H) of the Income Tax Act 1961 'restricts' sellers to charge tax collected at source (TCS) on sale of goods, if the buyer is liable to deduct tax (TDS) on purchase of such goods under Section 194Q.
As a result, it is expected that most of your Indian clients will be applying TDS on the purchase of goods from you and accordingly, you may not be required to collect tax collected at source (TCS) on the same with effect from 1 July 2021. Please keep reading to the TCS / TDS compliance section to find out what this means for you.
The Tradeshift Solution
Tradeshift is introducing a solution that will allow sellers to register and clear documents with the IRP before they are transmitted to buyers.
When talking about the Tradeshift Solution, there are two options available:
- Use Tradeshift for the clearance with the IRP.
- Send documents from the Tradeshift Platform after you have done clearance.
Using Tradeshift for Clearance
The sellers impacted by the new compliance rule will need to opt-in for Indian tax clearance and are required to first register with the Indian GST and receive a GSTIN number. When registering, you will receive a GSTIN number along with a username and a password. Remember to also include the GSTIN number on your company profile, under 'Company Identifiers'.
Furthermore, production API credentials must be obtained, which are needed for authentication purposes via registration on the e-invoicing portal. This registration can only be done with a valid GSTIN number. This article will explain the steps necessary for obtaining API credentials.
Next, download the 'Seller Configurator App' from the Tradeshift App Store.
Open the seller configurator app and click on the 'Indian Tax Clearance Tab'. Check your 'Company Name' and 'GSTIN Number'.
Fill in the username and password provided to your company by the GST authorities and click 'Save'.
The seller will then be active for India compliance. Tradeshift will do an API call to Trustweaver and documents can be submitted to the India GST.
Indian clearance can be deactivated by clicking the deactivate option in the 'Seller Configurator' app.
Sending Documents via Tradeshift after Clearance
To send an invoice via Tradeshift after Clearance, you will need to create an invoice on Tradeshift as per the normal procedure.
Add IRN number in the document header.
Attach the PDF of the invoice including the QR Code returned by IRP and click 'Send' when all other necessary information is filled in correctly. If you, as an integrated seller, send the QR code in your document data file as an attachment, Tradeshift
will include the QR code in the Tradeshift generated PDF.
Sent invoice example:
TDS and TCS compliance
If your customer will be collecting TDS (Tax deducted at source), you may not be required to add TCS (Tax collected at source). This is how the change affects the document-sending process on Tradeshift:
- If you are sending your documents using the Web UI (Tradeshift platform), the TCS section will still be available for you to use if applicable, but note that some of your customers may introduce a validation upon document submission to prevent the application of TCS on invoices / credit notes with 'Issue date' on or after 1 July 2021. You may need to remove the TCS in order to submit the document if you see such an error message.
- If you are an integrated supplier, the above is also true in your case. The TCS section will still be available for you to use, but some of your customers may introduce a validation to prevent document submission of invoices / credit notes with TCS and issue date on or after 1 July 2021. In case TCS is not applicable to you after 1 July 2021, we recommend that you simply leave the TCS field empty or with value '’0’’ to continue invoicing without any action required. If would like to remove the TCS field from your file structure, please contact Tradeshift Support so our team can update your Tradeshift integration.
If you still need to send documents via Tradeshift with the TCS (Tax collected at source) included, select the percentage from the dropdown list (pictured above), when creating an invoice. Make sure to check the amount adjusted accordingly before sending the document.
It is important to remember that some receivers have an active business firewall on their account, which means that they have put certain document validation rules in place. This means that sometimes a document that has been cleared will fail customer enforced validations, with the outcome that the legally cleared document cannot be sent. Make sure to always check the validation rules available for each and every customer on their landing page.
There are two options to delete the document submitted to the Indian tax authority:
- Cancel api that can be used within 24 hours from when the document was submitted to the Indian tax authority
- Submit a credit note to the Indian tax authority in order to cancel the original invoice and re-submit it
You can also read this article on Mandatory e-invoicing in India on our website.
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