Proforma Invoice vs Tax Invoice under GST: What's the Difference?
A proforma invoice is a quotation in invoice clothing: it creates no GST liability and gives no input tax credit. When to use one, and what to issue when the advance arrives.
Short answer: a proforma invoice is an offer — it tells the customer what they will be billed if they go ahead. It is not defined in the GST law, creates no tax liability when you issue it, and cannot be used by your customer to claim input tax credit. A tax invoice is the document the law requires when the supply happens; it carries your GSTIN, the tax, and supports the customer's credit.
Tax rules, rates and thresholds change. This guide explains the general rules as published by the GST department (CBIC); confirm the current position with them or your adviser before relying on it.
Side by side
- Purpose: proforma = a firm quote, often to get an advance or a purchase order approved. Tax invoice = the bill for a supply made.
- GST liability: proforma = none. Tax invoice = tax is due for the period.
- Input tax credit: proforma = no. Tax invoice = yes, if it is correct and reported.
- Numbering: proforma = any series you like. Tax invoice = a consecutive series unique for the financial year.
- Appears in GSTR-1: proforma = no. Tax invoice = yes.
The trap: the advance payment
Businesses send a proforma, the customer pays an advance, and nothing else is issued until the work is done. For services, GST is due when the advance is received, so you should issue a receipt voucher (section 31(3)(d) of the CGST Act) for the advance and pay tax on it. When you later issue the tax invoice, the tax already paid on the advance is adjusted. For goods, GST on advances has not been payable since 2017, but a receipt voucher is still good practice.
When to use a proforma invoice
- The customer's finance team needs an "invoice-like" document to raise a purchase order or release an advance.
- An importer needs one for a letter of credit or customs.
- You want a firm price in writing before you commit time.
If none of these apply, a quotation does the same job and is less likely to be mistaken for a bill.
How this works in Grovia
Grovia does not have a separate "proforma invoice" document. You send a quotation, which converts to a tax invoice in one step when the customer accepts. When an advance arrives, record a receipt voucher; Grovia cites section 31(3)(d) on it. GST invoices, credit notes and debit notes are all in the same place.
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Frequently Asked Questions
Is GST charged on a proforma invoice?
No. A proforma invoice creates no GST liability because no supply has happened. Tax becomes due when the tax invoice is issued, or earlier for services if an advance is received.
Can I claim input tax credit on a proforma invoice?
No. Input tax credit needs a valid tax invoice (or debit note) reported by the supplier.
What should I issue when I receive an advance?
A receipt voucher under section 31(3)(d) of the CGST Act. For services, GST is payable on the advance.
Does a proforma invoice need a GSTIN?
It is not required by law, but showing your GSTIN helps the customer's finance team prepare for the real invoice.
Does Grovia create proforma invoices?
Not as a separate document. Use a quotation, which converts to a tax invoice when accepted, and a receipt voucher for any advance.
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