Invoices & documents Invoices
Proforma invoice vs tax invoice
A proforma invoice is an advance bill that tells the buyer what they will pay; it creates no GST liability and gives no input tax credit. A tax invoice records the actual supply, carries GST and is what the buyer claims credit on.
- Traders taking advances
- Machinery and vehicle sellers
- Suppliers to government buyers
- Exporters
- Accountants and billing staff
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What each document is for
A proforma invoice is a commercial document. It is sent before the sale to confirm prices, quantities, taxes and terms, or so the buyer can arrange payment, a bank loan, a letter of credit or an import licence. It is not mentioned in GST law as a tax document.
A tax invoice is the legal record of a taxable supply under section 31 of the CGST Act. It must follow the mandatory format, gets reported in GSTR-1, and is the document the buyer needs to claim input tax credit.
Side by side
| Point | Proforma invoice | Tax invoice |
|---|---|---|
| When | Before supply | At or before supply of goods; within the time limit for services |
| GST liability | None | Yes, reported in GSTR-1 and paid via GSTR-3B |
| Buyer's input tax credit | Not allowed | Allowed if conditions are met |
| Numbering | Your own series | Consecutive, up to 16 characters, unique per FY |
| Entry in books | No accounting entry | Sales voucher, debtor raised |
| Can change | Freely, reissue a new version | Only through credit or debit notes |
| Use for e-way bill | No | Yes |
Worked example: advance against a proforma
A Surat textile wholesaler gets an order for 500 metres of fabric at ₹320 a metre from a retailer in Pune. The wholesaler sends a proforma:
| Line | Amount |
|---|---|
| 500 m × ₹320 | ₹1,60,000 |
| IGST at 5% (illustrative) | ₹8,000 |
| Total payable | ₹1,68,000 |
| Advance asked, 50% | ₹84,000 |
The retailer pays ₹84,000. The wholesaler records a receipt against the retailer's account. Because this is an advance for goods, GST is generally not payable at the time of receiving it; for services it is, and a receipt voucher is issued. Read GST on advances received for the detail.
When the fabric is dispatched, the wholesaler issues a tax invoice for ₹1,68,000, the advance is adjusted and ₹84,000 remains outstanding. The proforma itself never enters the GST return.
This is general information, not tax advice.
What to put on a proforma
- The heading Proforma Invoice, so nobody mistakes it for a tax invoice.
- Your own number and date, and a validity date for the prices.
- Buyer details, items, HSN, quantity, rate, discount and estimated GST.
- Payment terms, advance required and bank or UPI details.
- Delivery period and freight terms.
- A line such as: This is not a tax invoice. A tax invoice will be issued at the time of supply.
Other places a proforma is used
- Bank and loan paperwork. A buyer taking a machinery or vehicle loan often needs a proforma from the seller so the bank can release funds directly to the seller.
- Government and institutional buyers. Many purchase departments need a proforma to get budget approval before they can raise a purchase order.
- Exports. Overseas buyers use the proforma to open a letter of credit or apply for an import permit in their country. The final commercial and tax invoice follows at shipment.
- Advance-only customers. For a new party with no credit history, a proforma with 100% advance is a polite way to say pay first, then we dispatch.
In each case the proforma's numbers should match what you will actually bill. If freight, packing or insurance will be added later, show them as estimated lines now.
Common mistakes
- Claiming credit on a proforma. Buyers sometimes book a proforma as a purchase. Credit needs the tax invoice and receipt of goods.
- Using the tax invoice series. If a proforma takes INV/25-26/0101, your GST numbering gets a hole. Use PI/ or similar.
- Never issuing the tax invoice. When an order is supplied against a proforma, the tax invoice must still be raised on time.
- Different prices on the two. If prices change, send a revised proforma first so the buyer is not surprised.
Doing this with Tally and Cashflow OS
Cashflow OS makes proforma invoices as documents with your logo, letterhead, signature and bank and UPI details, and shares them as a PDF on WhatsApp or email. Proformas stay out of your Tally books. When the order is confirmed, the sales voucher can be created in Tally from the phone through the connector, so the tax invoice and the debtor balance come from Tally as usual.
Avoid these
Common mistakes
- MistakeBuyer booking a proforma as a purchaseDo this instead
Claim credit only on the supplier's tax invoice after the goods or services are received.
- MistakeNumbering proformas in the tax invoice seriesDo this instead
Use a separate series such as PI/ so your GST invoice numbering stays consecutive.
- MistakeSupplying against a proforma without a tax invoiceDo this instead
Issue the tax invoice at or before supply of goods, or within the time limit for services, and report it in GSTR-1.
- MistakeBilling different prices from the proformaDo this instead
If prices change, send a revised proforma before supply, and show freight or packing as estimated lines from the start.
Keep handy
Checklist
Proforma invoice vs tax invoice — 8 checks. Tick them as you go.
In Cashflow OS
How Cashflow OS helps
Cashflow OS puts your TallyPrime books on every phone in the team. Where it fits this topic:
Branded proformas shared as PDF
Make proforma invoices with your logo, letterhead, signature and bank and UPI details, and share them as a PDF on WhatsApp or email. They stay out of your Tally books.
See Proforma invoices
Tax invoice in Tally when the order is confirmed
Proformas can convert into Tally sales orders or invoices, so the tax invoice and the debtor balance come from Tally as usual.
See Create Tally vouchers from your phone
Questions people ask
Is a proforma invoice legally binding?
Does a proforma need a GSTIN?
Can I convert a proforma into a tax invoice?
Is a proforma reported in GSTR-1?
Is GST payable on an advance received against a proforma?
Can an e-way bill be made on a proforma?
Why do banks ask for a proforma?
How long should a proforma be valid?
This page is general information for Indian businesses, not tax, legal or financial advice. Rules and rates change — check the official portals or your CA before acting.
