Major Change in GSTN: Two New E-Invoice Options Added for Reverse Charge Purchases

The government has recently introduced a significant change to GST regulations. Under these new rules, you will be required to generate an e-invoice for certain types of purchases. Let’s look at who will be affected.

The government has implemented a major change in GST rules, which is expected to be highly beneficial for businesses. The GST Network (GSTN) is set to introduce two new categories into the e-invoice system. This will require companies to generate their own e-invoices for specific types of purchases and for services procured from abroad. This rule will apply to select transactions that fall under the Reverse Charge Mechanism (RCM).

The objective of this change is to ensure accurate reporting of transactions under the GST framework and to minimize the potential for tax evasion. This measure was recommended during the 57th meeting of the GST Council.

What are the two new e-invoice categories?

According to an advisory issued by the GSTN on October 16, two new categories are being added to the e-invoice system. The first category is 'RCM-DOM,' which covers specific purchases made within the country from unregistered suppliers—transactions that are subject to GST under the Reverse Charge Mechanism. The second category is 'RCM-IMP,' which pertains to services procured from abroad that are also subject to GST under the Reverse Charge Mechanism.

Through these categories, eligible businesses will be able to submit self-invoices on an authorized Invoice Registration Portal (IRP) and obtain an Invoice Reference Number (IRN).

What is RCM?

Typically, a supplier selling goods or services collects GST and deposits it with the government. However, in certain specific transactions, this responsibility shifts to the buyer or the recipient of the services. This system is known as the 'Reverse Charge Mechanism' (RCM).

For instance, if a company procures a service from abroad that is subject to RCM, the responsibility for paying GST on that service may fall upon the company. In such cases, as per the regulations, the business entity might also be required to issue a 'self-invoice'.

Who will be affected?

This provision applies to registered business entities with an annual turnover of ₹5 crore or more. However, the actual scope will depend on the conditions stipulated in the relevant laws and government notifications. The GSTN has not yet announced a final date for the implementation of this new system. For the time being, businesses can test the process on the authorized e-invoice portal.