Proforma Invoice vs Tax Invoice: What's the Difference
A proforma invoice is a preliminary bill sent before a sale is final to confirm prices and terms. It has no tax effect and is not reported in GST returns. A tax invoice is issued when goods or services are supplied, follows GST invoice rules (GSTIN, HSN or SAC, tax breakup) and creates the tax liability and the buyer's input tax credit.
A proforma invoice and a tax invoice can look almost the same, which is why they get mixed up. One is a preliminary quotation. The other is a legal document that creates GST liability as soon as you issue it.
What each one does
| Proforma invoice | Tax invoice | |
|---|---|---|
| Purpose | Confirm prices, quantities and terms before a sale | Record a completed supply |
| Legal status | A preliminary document | A legal tax document |
| GST effect | None | Creates liability and the buyer's credit |
| Reported in GST returns | No | Yes |
| Must follow GST invoice rules | No | Yes: GSTIN, HSN or SAC, tax breakup |
| Number series | Separate | Continuous series |
A simple rule
If money and goods have not changed hands yet, it is a proforma invoice. When you supply the goods or services, you must issue a tax invoice.
A typical flow
- Quotation. An offer of price and terms.
- Proforma invoice. Sent to confirm the order, and often to request an advance.
- Advance receipt. Proof of the payment received. For services, GST may be payable on advances, so check the rules for your case.
- Tax invoice. Issued when goods are delivered or services provided.
- Payment and reconciliation.
Why mixing them up causes trouble
- ✓A buyer cannot claim credit on a proforma invoice, so if you send one instead of a tax invoice, they lose credit and may ask for a correction.
- ✓If you report a proforma invoice as a sale, your returns will show tax you have not yet earned.
- ✓Using the same series for both leaves gaps in your tax invoice numbering, which auditors notice.
How to label them
Mark proforma invoices clearly, such as "Proforma invoice - not a tax invoice", and use a different numbering series. Many billing systems can convert a proforma invoice into a tax invoice with the same line items, so nothing is retyped.
Other documents you may see
A delivery challan accompanies goods moved without a sale, such as for job work or samples. It is not a tax invoice either.
Check before you send
- ✓Is the sale complete?
- ✓Does the document carry the right title?
- ✓Is it from the right number series?
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
LinkedIn profile →