A tax invoice is one of those commercial documents that play a vital role in the trading process. Typically, tax invoices serve as a reminder of outstanding payment and are considered as bills under normal circumstances. Businesses need to become familiar with the importance and prospect of the document to use it in their favour.

What is a Tax Invoice?

Tax invoices are legal documents sent by a GST registered dealer to another. This invoice states the amount of tax to be paid and helps purchasers claim the Input Tax Credit. Typically, it is issued when goods are sold with the objective of resale, and the buyer is GST registered.

A tax invoice serves as a summary that proves useful while reporting GST monthly, quarterly or on an annual basis. At the end of a fiscal year, tax invoices are sent to relevant tax authorities.

The importance of tax invoices varies from one country to another as it is used for several purposes. It must be noted that tax invoices are different from tax receipts and prove useful under different circumstances.

What is The Format of a Tax Invoice?

Though there may not be a standard tax invoice format, a legitimate invoice comprises these following information –

  • Unique tax invoice number
  • The supplier’s name, address and GSTIN
  • Date of issuance 
  • The recipient’s name, address and GSTIN (in case the recipient is registered)
  • HSN code of goods or services
  • Number and unit of goods
  • The total value of goods or services
  • Description of the goods or services
  • Taxable value after discount adjustment
  • Applicable GST rate
  • Amount of tax stating the breakup of applicable taxes and cess
  • Name of the place and destination of sold goods
  • Delivery address in case it is not the same as the place of supply
  • If GST will be paid on reverse charge basis
  • Signature of the supplier
  • HSN code if the turnover is over Rs. 1.5 Crore

In case the recipient is unregistered, and the bill in question is over Rs. 50,000 then the tax invoice must state –

  • The recipient’s name and address
  • Delivery address
  • State name and code

Importance of Tax Invoices:

Typically, a tax invoice is considered vital for the efficient functioning of the GST system. The following emphasises the importance of tax invoices under the same context –

    • They back up a GST registered person’s input tax credit claim made on standard-rated purchases.
    • Helps to determine the supplies that should be included in a given taxable period.
    • The document is compulsory to avail input tax credit.
    • Allows determining when the vendor can claim the input tax as per the tax invoice received from his/her supplier.
  •  The invoice date helps to ascertain when GST will be taken into account by a registered individual on the supply of goods.

 Difference Between Tax Invoices and Tax Receipt: 

Though both are generated by sellers and are primarily issued to buyers, there are a few fundamental differences between them that are mentioned below.

Tax Invoices 

Tax Receipts 

The document serves as a request for payment against the sale. A seller provides it to a buyer who is GST registered.

The document serves as a proof of payment for finalising a sale. Also, it serves as proof of ownership in some specific cases.

It comprises details like prices, discounts, taxes, the total amount due, etc.

It includes the list of goods or services, credit, taxes, discounts, the total amount paid, method of payment, etc. 

Since tax invoices are not receipts, businesses cannot use them directly to raise funds through bill discounting. However, businesses can utilise the invoices issued to their customers to avail funding at discounted rates. KredX provides its invoice discounting services online to help raise funds through the unpaid invoices for working capital fulfilment without much hassle.

You can conveniently access funds bill discounting services from KredX within 24-72 hours* by completing a simple application process. 

Difference Between Tax Invoice and Proforma Invoice:

Tax Invoices 

Proforma Invoices 

A tax invoice proves useful in notifying buyers that the tax payment is due.

It is a document provided by a supplier to a buyer. It serves as proof of sale and proves useful in collecting payment from the buyer. 

It is a kind of bill that is issued before suppliers receive payment.

It is a kind of quotation that is issued before buyers receive the goods or services.

Comparatively, the uses of tax invoices and proforma invoices are not as wide as those of invoices issued towards a sale of goods or services.

With KredX, India’s leading integrated cash flow solution provider, you can easily meet your cash flow requirements and keep your operational activities flowing via invoice discounting. Contact us now to learn more about our invoice discounting services!

Frequently Asked Questions Tax Invoice:

A. Though both contain similar information, a tax invoice is not a tax receipt. Tax invoices are a reminder that payment is due while receipts state that payment has been made to finalise a sale.