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What is the Difference Between Pro Forma invoices and Tax invoices?

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Difference Between Pro Forma invoices and Tax invoices

Invoicing is an integral part of a business. It acts as a form of communication between the seller and the buyer and helps facilitate and maintain smooth business transactions. 

If you own a business and want to establish your financial credibility, then proper knowledge about invoices becomes necessary. An invoice is a perfect way to package up the services or products that your business provides to a customer. It can also serve as a record of the transaction for both you and your customer.

But, what if you have no idea about it? A customer might ask you to issue a Pro Forma Invoice before making a purchase, and if you don’t know what that means, it can put you in a difficult position. 

Don’t worry. We’ve made it easier for you! In this blog post, we have listed down all the necessary information for the most commonly used invoices, namely the Pro Forma Invoice and the Tax Invoice. 

So, let’s get started.

# What is a Pro Forma Invoice?

A Pro Forma Invoice is an initial invoice generated by the seller to give the buyer necessary information about the goods. Keep in mind that these goods are not sold yet. The invoice provides an estimated cost of the goods and gives an idea of how much a buyer can expect to pay. 

It contains a summary of an agreement between two parties and the terms of the same and can be used as an estimate for future sales to be done. It acts as a temporary document used to declare a commitment to the buyer that the goods are within specified prices. It can also be negotiated. 

# Purpose of a Pro Forma Invoice

The purpose of a Pro Forma Invoice is to provide an estimated cost of the goods to the buyer. It also makes the buyer understand the content of the goods before making a purchase.

# When is a Pro Forma Invoice Generated?

A Pro Forma Invoice is often considered as a business proposal where a seller offers its services to a potential buyer. It is usually used before any purchase has been done or when there are no detailed discussions about what will happen next.

# Contents of a Pro Forma Invoice

Under GST, a Pro Forma Invoice should include the following details:

  • Date of issue
  • Address and GSTIN of the Supplier
  • Address and GSTIN of the Buyer
  • Description of the goods/services with their quantity, unit price, HSN/SAC codes, and taxes(CGST, SGST, and IGST)
  • Terms of Pro Forma Invoice
  • Terms of the payment
  • The validity period of the Pro Forma Invoice
  • Bank details of the Supplier(Account Number and IFSC Code)
  • Authorized Signature of the Supplier

# What is a Tax Invoice?

A Tax Invoice is generated by the seller when a purchase is made. It includes the description of the goods/services purchased by the buyer. 

A Tax Invoice indicates the confirmation of the sale and is non-negotiable. It requests the buyer to make the payment for the goods purchased and includes details of the goods/services along with the details of the taxes included. 

# Purpose of a Tax Invoice

The purpose of a Tax Invoice is to inform the buyer about the amount due for the purchased goods. It acts as a piece of evidence for the transactions between the buyer and the seller. 

# When is a Tax Invoice Generated?

When a customer makes a purchase, a tax invoice is generated by the seller, which contains the details of the goods provided by the seller. It includes the description, quantity, value of the goods, proper taxes, proper GST, and other particulars.

# Contents of a Tax Invoice

Under GST, a tax invoice must include the following details:

  • Name, Address, and GSTIN of the Seller
  • A unique serial number(unique for each financial year) containing alphabets, numerals, and special characters
  • Date of the invoice issued
  • Name, Address, and GSTIN(if registered) of the Buyer
  • Name, Address of the Buyer, Address of delivery, State Name, and State Code(only when the amount of the purchase exceeds 50,000)
  • Description of the goods 
  • The total value of goods supplied to the buyer
  • The taxable value of the supply after discounts
  • The applicable amount of GST (Rates of CGST, SGST, IGST, UTGST, and Cess mentioned)
  • Amount of tax (With the breakup of amounts of CGST, SGST, IGST, UTGST, and Cess)
  • The place of supply and name of destination state of the goods (for inter-state sales)
  • Delivery address(if it’s different from the place of supply)
  • If the GST is payable on a reverse charge basis
  • Signature of Supplier or his authorized representative

# Conclusion

We hope you understood the importance of invoices and what they are exactly through this blog post. Invoices help in running your business smoothly and efficiently. They also help you track your profits and create better strategies for higher revenue.

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