A tax invoice is an essential document produced by businesses for their customers following the completion of a sale of goods or services. A tax invoice under GST (Goods and Services Tax) is essential for staying compliant with the legal requirements for operating a business. Standard, proforma, sales, and export are some of the common types of tax invoices, each serving a specific purpose. Learning the meaning of tax invoices and the differences between their types will help businesses maintain accurate financial data while ensuring all tax laws are being followed. The article will provide insights into the format of tax invoices, their types, and differences to help companies develop efficient invoicing processes.

What is a Tax Invoice?

A tax invoice is a document that a seller issues to a buyer detailing the goods or services provided, the applicable taxes, and the total charges for the purchase. It serves as legal evidence of the sale.  Importantly, it includes details businesses must furnish to tax authorities such as total amount, taxable value and tax rate. In taxation structures such as GST (Goods and Services Tax), tax invoice holds utmost importance, as it is necessary to generate these tax invoices for claiming the Input Tax Credit (ITC), as well as to ensure compliance with all regulatory requirements.

The main purpose of a tax invoice is to make a transaction transparent by stating all details of that sale such as how many goods were sold, their price, tax rate and the total amount of the sale. The document ensures that both the buyer and seller are well aware of the taxes involved in the transaction.

Tax invoices, along with providing evidence of the transaction, are imperative for adhering to tax regulations, keeping financial records, and handling tax filings and audits. If a business refuses to issue a proper tax invoice,  can hurt its credibility. Hence, it’s important to understand the meaning and format of tax invoices in modern-day transactions.

Tax Invoice Under GST: Legal Requirements and Key Features

India’s Goods and Services Tax (GST) structure mandates all taxable supplies of goods or services to bear a tax invoice. GST tax invoices are legally binding documents reflecting taxes levied on transactions, enabling buyers to claim Input Tax Credit (ITC), thereby ensuring proper compliance with GST provisions.

Key Features of a GST Tax Invoice

1. GSTIN (Goods and Services Tax Identification Number): Every registered business has a unique GSTIN. The tax invoice will have to carry this GSTIN, and also the buyer’s GSTIN if the buyer is claiming ITC.
2. Invoice Number: Every invoice is required to have a number so it can be uniquely identified and easy to locate when it comes to tax filing and/or auditing reasons.
3. Date of Issue: The date when the invoice was issued should be specified. As per GST laws, invoices for goods are required to be issued before or at the time of delivery and the invoices for the supply of services are required to be issued within 30 days of completion of the supply.
4. Description of Goods or Services: The invoice shall indicate the description of the goods or services supplied, including quantity, rate per unit, and value of the transaction. 
5. Taxable Value and Tax Rate: The invoice must reflect the taxable value of the goods or services and the rate based on the types of GST (CGST, SGST, or IGST) payable. The tax amounts payable must be separately shown to indicate exactly what amount has been levied.
6. Terms of Supply: For supply inside the same state, central GST (CGST) and state GST (SGST) are levied, while in case of an inter-state supply, the Integrated GST (IGST) is imposed.
7. HSN (Harmonized System of Nomenclature) Code: For some businesses, generally with annual turnover in excess of a specified level, HSN code is required to represent the goods or service described in invoice. 
8. Signature: The tax invoice has to be signed by the authorized person from the business issuing the invoice. The said person can affix their hand-written signature, or a digital signature is also accepted.

Time Limit for Issuing a GST Tax Invoice

• When transporting goods, a tax invoice is required before or at the time of removal. If there is no movement of goods, tax invoice is required before or at the time of delivery.
• In case of services, businesses need to submit it within 30 days after service has been provided.

With a GST-registered tax invoice, companies comply with the law and retain the correct accounting records to claim Input Tax Credit and avoid penalties at the time of tax collection.

Types of Tax Invoices

There are different types of tax invoices issued in the business sector based on the transactions and tax regulations. Let’s look at some of the common types of tax invoices under GST.

Regular Tax Invoice

A regular tax invoice is one of the widely used invoice types for standard transactions of taxable goods or services. It includes details like seller GSTIN, buyer GSTIN, description of goods/services, taxes (CGST, SGST, IGST, if applicable) and total amount payable. As per law, every transaction under GST must include a regular tax invoice.

Bill of Supply

A bill of supply is issued for a supply where no tax is levied. This could be because the business is supplying exempt goods or services, or it opts for the composition scheme under GST. Since no tax is levied, the buyer cannot claim ITC on the basis of a bill of supply. The main distinction between a bill of supply and a regular GST invoice is that no tax details are provided. 

Debit Note

A debit note is issued by a supplier to a purchaser in order to rectify an undercharge in a tax invoice. The discrepancy could be a result of incorrect price or tax rate in the original invoice or additional goods or services discovered by the supplier subsequently. The debit note is issued with an intention of correcting the amount value, with the buyer being required to pay the extra tax amount. 

Credit Note

A supplier should issue a credit note when there is an overcharge on the original tax invoice or when the goods or services are returned or canceled by the buyer. This will reduce the taxable amount and the tax liability for the supplier, ensuring that the correct tax amount is returned is mentioned in the tax filing, and the buyer is accordingly refunded.

Receipt Voucher

A receipt voucher would be sent when a business gets an advance payment for any goods and/or services. The receipt includes the details of the advance and the applicable GST. When the sale is made, the receipt voucher would be adjusted against the tax invoice.

Refund Voucher

A refund voucher is given when a seller returns the upfront payment received from the buyer for non-deliverable products or services. It describes the refund amount, along with the applicable tax that must be refunded to the customer. It is a key document for financial accounting and tax purposes.

Revised Tax Invoice

A supplier provides a revised tax invoice when the original tax invoice has an error like the buyer or seller’s name is not correct. Businesses are allowed to issue updated tax invoices within one month from receiving the GST registration certificate. 

The different types of tax invoices serve a distinct purpose, depending on the transaction type. Therefore, it is essential for businesses to know the different tax invoice types, to issue the correct invoice, be tax compliant, maintain accurate records of their financial accounts and avoid disputes.

Read More: Invoice Processing Software

Format of a Tax Invoice: Key Elements

To ensure adherence to tax rules, especially tax structures like GST, a tax invoice must follow a certain format. The invoice must describe the transaction in detail for it to be legally binding. A well-drafted tax invoice also promotes transparency between the seller, buyer, and tax authorities.

Key Elements of a Tax Invoice

1. Invoice Header: The header includes the seller’s details like:
   • Business name
   • Address
   • Contact information
   • GSTIN
2. Unique Invoice Number: A tax invoice must mandatorily have a unique invoice number. The number should be sequential so it can help businesses and government keep track of the history of all issued invoices.  
3. Date of Issue: The invoice should mention the date of issue. According to GST law, the invoice should be issued at the time of removal of goods or at the time of provision of services. Businesses may be penalized if they delay the issuance of an invoice.
4. Buyer Details: The tax invoice must include the buyer’s information, including their:
   • Name and address
   • GSTIN (if applicable)
   • Shipping and billing address (if different)
5. Description of Goods or Services: For goods, the description should contain information like product name, amount (kg, ton, or carton), and unit price. For services, the description should be a detailed explanation about the service provided and its price.
6. HSN Code / SAC Code: These are to be mentioned by firms with a turnover crossing the prescribed limit, primarily for the purpose of taxation classification and statutory compliance. This stands for the Harmonized system of nomenclature and the Services Accounting Code, respectively.
7. Taxable Value: Taxable value is the amount on which GST is levied upon. It is the complete price of the commodities or services without adding any tax.
8. GST Rate: The tax percentage at which goods or services are charged must be mentioned. These could include:
   • CGST
   • SGST
   • IGST 
9. Tax Amount: The amount of tax to be paid should be clearly stated and mentioned under the column that specifies CGST, SGST, or IGST. 
10. Total Amount Payable: The total amount to be paid by the buyer, tax inclusive, should be included in the invoice. 
11. Signature: The tax invoice should be physically or digitally signed by an authority from the business issuing the invoice.

Maintaining the format of tax invoice as above ensures businesses stay compliant and calculate and make accurate GST payments. It also helps maintain consistency in paperwork, leading to a seamless tax filing process.

Example of a Tax Invoice

To facilitate the understanding of tax invoice structure and its elements, below is an illustration of a GST-compliant invoice. The tax invoice sample below shows how details like product/service and tax rates should be included.

ABC Traders Pvt. Ltd.

123 Main Road, Mumbai, Maharashtra, 400001
GSTIN: 27XXXXXXXXXXC1ZP
Contact: +91-1234567890
Email: [email protected]

Tax Invoice
Invoice No: INV002345
Date: September 14, 2024

Bill To:
PQR Enterprises
456 Market Lane, Pune, Maharashtra, 411002
GSTIN: 27XXXXXXXXXXZ5F

Ship To (if different):
PQR Enterprises Warehouse
123 Industrial Center, Pune, Maharashtra, 411028

Description of Goods/Services:

Taxable Value: ₹256,000
GST (18%):

• CGST (9%): ₹23,040
• SGST (9%): ₹23,040

Total Amount Payable: ₹302,080

Terms of Supply:

• Payment is due within 30 days of date of issue
• Goods supplied on DDP (Delivered Duty Paid) basis

Authorized Signatory
(Authorized Signature)
ABC Traders Pvt. Ltd.

Key Points from the Example of Tax Invoice

1. Business Details: There are complete details of the issuing business (ABC Traders Pvt. Ltd.); GSTIN; Address, and contact details are also specified.
2. Buyer’s Details: The “Bill To” and “Ship To” sections mention buyer details like name, address, and GSTIN.
3. Goods Description: Breakup of each of the items supplied with corresponding HSN codes, quantity, and price.
4. Tax Breakdown: The details of both CGST and SGST can be seen separately on the invoice. 
5. Total Amount Payable: The selling price of goods, plus taxes, gives the total amount payable by the buyer.

The tax invoice sample shows the importance of listing the details clearly on every invoice. The format helps ensure accuracy and simplifies the tax filing process for companies and customers alike.

Difference Between Proforma Invoice and Tax Invoice

Although both proforma and tax invoice play an important role in the process of business transaction, they are functionally different and have some significant differences.

Let’s explore the difference between proforma invoice and tax invoice for a streamlined invoicing process.

Definition

• Proforma Invoice: A proforma invoice is a preliminary invoice (not a legally binding document) that is sent to a prospective or current buyer prior to the actual completion of the sale. It is a quotation or estimate of the goods or services that are to be supplied. The invoice type is not an official request for payment.
• Tax Invoice: A tax invoice is a legal document issued after the completion of a sale, summarizing the actual goods/services provided, the tax rates charged, and the final amount payable.

Purpose

• Proforma Invoice: For quotation purposes only or to open up negotiations between seller and buyer. It gives the purchaser a rough estimation of the transaction so that they can determine the expense before signing.
• Tax Invoice: It’s a legal document which records the completed sale. It can be used to notify the buyer to make bill payment and to file a tax return and avail ITC.

Legal Status

• Proforma Invoice: A proforma invoice is not a legal document and does not represent a binding contract or proof of a transaction. It cannot be used to file taxes. 
• Tax Invoice: All taxable sales must have a tax invoice, as they are a legal requirement and proof of transaction. Its format has to be in accordance with GST regulations.

Components

• Proforma Invoice: It contains details such as description of goods or services, quantity, estimated value and possible tax. It doesn’t include an invoice number, tax breakdowns or total payable amounts.
• Tax Invoice: It contains all fields mandated under the law, such as the unique invoice number, the final tax amounts (CGST, SGST or IGST), the GSTIN, and detailed description of the goods or services supplied.

Issuance

• Proforma Invoice: An invoice issued before the sale. It is a preliminary evidencing document that presents the terms and costs of the proposed transaction.
• Tax Invoice: Issued after the transaction is finalized and the goods or services have been delivered or are ready to be picked up/delivered. It is a legally binding document confirming the transaction and can be used to request for payment.

Tax Implications

• Proforma Invoice: A proforma invoice does not have taxable consequences as it’s not the final sale statement. It’s a rough calculation and doesn’t cause tax implications.
• Tax Invoice: The tax invoice displays the correct tax payable (CGST, SGST, or IGST) and is necessary for the calculation and payment of the right tax to the government. The document can be used to claim ITC.

Difference Between Invoice and Tax Invoice

Whilst invoices and tax invoices are both a formal request for payment, their application, structure and content differs greatly. 

Let’s explore the difference between invoice and tax invoice to ensure the accuracy of financial records.

Definition

• Invoice: The seller provides an invoice to the buyer to ask for payment for goods or services supplied. Normally, this document indicates the kind of products or services, their prices and the payment terms but tax details may not provided, depending on the type of deal
• Tax Invoice: A tax invoice is an invoice that includes all the information required by the tax authority. In India, where the Goods and Services Tax is applicable, it is a necessary document for filing tax returns and claiming ITC.

Purpose

• Invoice: An invoice is sent from seller to buyer requesting payments for goods or services provided. They are common business documents, and may or may not be taxed, depending on the transaction type.
• Tax Invoice: Typically used for transactions subject to tax, in particular where a GST is applicable. It is an essential document that ensures both the seller and buyer are tax compliant.

Legal Requirements

• Invoice: In terms of layout, there are no legal requirements for a ‘normal invoice’. It can be with or without details regarding tax depending on the location, and type of transaction.
• Tax Invoice: The format of a tax invoice must follow a particular structure and include the required tax elements. These include GSTIN, GST, and HSN/SAC codes. Discrepancies in the format can lead to penalties.

Components

• Invoice: A general invoice comprises of the following essential components:
  • Buyer/seller information
  • Date of issue
  • Details of goods/services
  • Total amount due
  • Payment terms
• Tax Invoice: In addition to the things listed in the general invoice, tax invoice must also contain the below information:
  • GSTIN (buyer and seller)
  • Unique invoice number
  • HSN/SAC code for goods and services
  • Taxable value
  • Breakdown of taxes (CGST, SGST, or IGST)
  • Final tax amount

Tax Implications

• Invoice: Taxes may or may not be present on a general invoice. In the absence of taxes, the invoice just contains the payment for the product or service.
• Tax Invoice: A tax invoice will provide the exact amount of tax charged on the sale. It is essential for activities like tax reporting, filing and claiming ITC.

Issuance

• Invoice: Given in all kinds of business transactions, including those not involving tax. It can be used as a request to the buyer for payment. 
• Tax Invoice: A tax invoice should be issued by the sellers for any sale of taxable goods or services. It is a mandatory document under the GST.

How EnKash helps businesses streamline their invoicing

EnKash enables smooth invoice management for businesses

• Automation: All the procedures to upload invoices are digitized. This reduces manual work and errors.
• Tracking: It enables a business to track its invoices in real-time, having higher visibility and control over payments.
• Customizable Approval Workflows: Businesses can set up multiple approval workflows that ensure quick clearance of invoices. This ensures compliance with internal policies.
• Seamless Integrations: With integrated major accounting software like Tally and Zoho, EnKash improves synching of data and reduces redundancy.
• Payment Automation: Automated reminders for payments made on time to vendors ensure that cash flows efficiently and vendor relationships become better.

Conclusion

To sum it up, a tax invoice under GST is a fundamental document which confirms that a buying and selling transaction has been finalized. It helps both the buyer and seller in recording the appropriate tax amount. The tax invoice can also serve as proof when claiming ITC.

Mandatory tax details such as a number of GSTIN, HSN/SAC codes, break up of different taxes, the total amount payable etc., play a vital role in making the tax invoice as a standardized document for regulatory purposes. Businesses must understand the differences between the types of tax invoice documents to ensure they issue the right invoices while adhering to tax requirements.

Apart from making a business more financially transparent, tax invoices can help avoid disputes or other legal problems that may arise. As companies plan to scale and grow, a streamlined and efficient invoicing process can help manage financial operations better.

FAQs

What is the purpose of a tax invoice under GST?

The purpose of a tax invoice under GST is to mention the value of the sale of goods or services along with the relevant taxes levied on the transaction. It also helps a buyer to claim an Input Tax Credit (ITC) and the seller to comply with tax rules.

Can a proforma invoice be used to claim ITC?

No, a proforma invoice cannot be used to claim Input Tax Credit (ITC) as it is a preliminary document and does not finalize the transaction. Only a tax invoice can be used to claim ITC.

What details are mandatory on a tax invoice?

The primary information required within a tax invoice are the supplier’s and recipient’s GSTIN, invoice number, date, description of goods or services, HSN/SAC code, quantity, corresponding unit price, breakdown of GST (CGST, SGST, IGST), and total amount payable.

Is it necessary to issue a tax invoice for every sale?

Yes, a tax invoice must be issued for each sale transaction involving taxable goods or services, as per the GST law. If a tax invoice is not issued or its format has discrepancies, then there could be penalties and compliance issues.

How is a tax invoice different from an ordinary invoice?

If the invoice specifically states the GST levied on the transaction, it is referred to as a tax invoice; an ordinary invoice, on the other hand, may not provide details of tax. A tax invoice is important to claim ITC, whereas an ordinary invoice is used for transactions that are not taxable.

What is the significance of HSN and SAC codes on a tax invoice?

Goods are identified through HSN (Harmonised System of Nomenclature) codes while services are identified through SAC (Services Accounting Code) codes.  The inclusion of these codes ensures a tax invoice is fully compliant as far as the classification of tax is concerned.

Can a tax invoice be amended after it is issued?

Yes, a tax invoice can be amended if required, in the case of mismatch in any information. The changes must be done by adding a proper credit note or debit note and must be in accordance with the GST rules.

What is the difference between a tax invoice and a bill of supply?

If GST is charged on a taxable transaction, a tax invoice is issued. However, a bill of supply is issued if a business supplies goods or services that are exempt from goods and services tax (GST) or if the supplier is registered under the composition scheme.

When should a business issue a proforma invoice instead of a tax invoice?

A proforma invoice is issued before the sale has been completed (perhaps while terms are under negotiation or as a price estimate). It has no tax obligations attached to it and differs from a tax invoice.

What happens if a tax invoice is not issued?

If a tax invoice is not issued, businesses may risk non-compliance with the GST law, and imposition of penalties, and buyers may not be able to claim ITC.