The Central Board of Direct Taxes (CBDT), in coordination with the GST authorities, has officially linked e-invoice non-compliance with the disallowance of tax deductions under the Income Tax Act. This new compliance framework aims to strengthen the accuracy of reporting between the GST and income tax systems and ensure that companies claiming business expenses do so based on valid and verified documentation. From the current financial year onward, companies failing to generate e-invoices where mandated will face restrictions on claiming corresponding expenses as deductions while computing taxable income.

Under the revised guidelines, companies falling under the e-invoicing threshold—currently ₹5 crore and above in annual turnover—must ensure that every business-to-business (B2B) transaction is supported by a valid Invoice Reference Number (IRN). If such invoices are missing or invalid, they will be treated as non-compliant for both GST and income tax purposes. Consequently, the corresponding purchase, service, or contractual expense may be disallowed during income tax assessments, leading to a higher tax liability.

The CBDT has urged companies to integrate their accounting systems with government-recognized e-invoicing APIs and regularly reconcile e-invoice data with GST returns and books of accounts. Tax auditors are also directed to flag discrepancies and report e-invoicing failures in the tax audit report. This convergence of compliance mechanisms is designed to close loopholes, enhance transparency, and prevent tax leakage, reinforcing the government’s goal of a unified and digitally traceable tax ecosystem.