General information, not professional advice. GST rules, rates and due dates change by notification. Check the current position on the GST Portal or with your CA before you act on anything here.
The short version
- A proforma invoice is a commitment to supply on stated terms. It is not a demand for payment and creates no GST liability.
- A tax invoice records an actual supply, carries GST, and is what your buyer claims credit on.
- Send a quotation to open a negotiation, a proforma to let the buyer raise a purchase order or arrange payment, and a tax invoice when the supply happens.
- A proforma is not reported in any GST return, so never number it in your tax invoice series.
- Advance received against a proforma needs a receipt voucher, and there are GST consequences for advances on services.
What a proforma invoice is
A document sent before the supply that says: this is what we will supply, in these quantities, at this price, on these terms. Buyers ask for one to raise a purchase order, to get an internal approval, to arrange finance, or to open a letter of credit. It looks like an invoice on purpose, because it has to carry enough detail for those decisions.
What it is not: a bill. No payment is due on it in the legal sense, no tax is charged on it, and nothing is recorded in your books because no supply has taken place.
Proforma, quotation, tax invoice
| Aspect | Quotation | Proforma invoice | Tax invoice |
|---|---|---|---|
| Stage | Negotiating | Agreed, not yet supplied | Supplied |
| Binding | An offer | A commitment on the stated terms | A record of the supply |
| GST | None | None; tax shown for information only | Charged and payable |
| In your books | No | No | Yes |
| In GST returns | No | No | Yes |
| Buyer's credit | No | No | Yes |
When to send which
- Quotation when the buyer is comparing options and the price may still move.
- Proforma invoice when the deal is agreed in substance and the buyer needs a document to act on: raise a PO, release an advance, or get approval.
- Tax invoice when the goods are removed or the service is supplied, within the time limits for each.
What a proforma should contain
No format is prescribed, which is exactly why you should be deliberate:
- The words "Proforma invoice" clearly on it, and ideally "This is not a tax invoice"
- Your business name, address and GSTIN
- A reference number from a separate series, never your invoice series
- Date, and a validity period for the prices
- Buyer's name, address and GSTIN
- Item description with HSN or SAC, quantity, rate and value
- The tax that will apply, shown for information
- Delivery terms, payment terms, bank details
The GST position
No supply, no tax point, so a proforma invoice creates no GST liability and appears in no return. This is also why it cannot be used by your buyer to claim input tax credit, however complete it looks. If a buyer's accounts team asks for "the invoice" to process payment, what they need at that stage is usually the proforma, and what they need for credit is the tax invoice that follows.
If money arrives first
An advance against a proforma is not ignored. For services, tax is generally payable on an advance when it is received, and you issue a receipt voucher for it. For goods, GST is payable at the time of the invoice or supply rather than on the advance. If the deal falls through and you return the money, you issue a refund voucher. None of this uses the tax invoice series either.
Keeping the series clean
The one thing to get right: separate numbering. Your tax invoice series must be consecutive and unique for the year, and a proforma numbered inside it leaves a gap you will have to explain, or worse, a number reused later. Keep proformas in their own series, and let the tax invoice number be issued only when the supply happens, which is what AawazAI does when you confirm a sale.
Invoice numbers issued when the sale happens
AawazAI numbers a tax invoice only on confirmation, inside the 16-character limit and in an unbroken series, so your books and your returns line up.
Frequently asked questions
Is GST payable on a proforma invoice?
No. A proforma invoice is issued before the supply, so there is no tax point and no GST liability. Tax is shown on it for information only, and it appears in no GST return.
Can a buyer claim input tax credit on a proforma invoice?
No. Credit is available only on a tax invoice or debit note issued by a registered supplier, and only when the invoice appears in the buyer's GSTR-2B.
What is the difference between a quotation and a proforma invoice?
A quotation is an offer during negotiation. A proforma invoice comes after the terms are agreed and is a commitment to supply on those terms, with enough detail for the buyer to raise a purchase order or release payment.
Should a proforma invoice use the same number series as tax invoices?
No. Tax invoice numbers must be consecutive and unique for the financial year, so a proforma should use a separate series to avoid gaps or duplicates in the invoice series.
What do I issue if I receive an advance?
A receipt voucher. For services, tax is generally payable on the advance when received; for goods, at the time of invoice or supply. If the advance is returned, issue a refund voucher.