Proforma vs tax invoice: when to use each
Clients often ask for "an invoice" before they have decided to buy, and staff oblige by raising a tax invoice that later has to be cancelled or credit-noted. The confusion between a proforma invoice and a tax invoice is one of the quietest sources of GST reconciliation headaches in a practice. Getting the distinction right keeps your outward supply register clean and your clients' input tax credit intact.
What each document actually is
A proforma invoice is a quotation in invoice format. It tells the buyer what you intend to charge, the likely tax, and the terms — but it creates no liability and no entitlement. It is not recognised under the CGST Act as a tax document, so it never enters your GSTR-1 and never appears in the buyer's GSTR-2B.
A tax invoice is the statutory document under Section 31 of the CGST Act, 2017. Issuing it fixes the time of supply, crystallises your GST liability for that tax period, and is the document on which your customer claims input tax credit under Section 16. Once raised, it is a live entry in your books and your returns.
- Proforma: indicative, pre-sale, no tax payable, no ITC.
- Tax invoice: definitive, post-supply, tax payable, ITC available.
When to use a proforma invoice
Use a proforma when nothing has been finalised. It is the right tool to communicate price and scope while a deal is still moving.
- Sending an estimate so the client can approve a retainer or scope.
- Helping a buyer arrange internal budget approval or a purchase order.
- Giving an importer a document to open a letter of credit or seek advance remittance.
- Quoting for a service whose final quantity or duration is not yet fixed.
Because it carries no liability, you can revise a proforma freely. Mark it clearly as "Proforma Invoice — not a tax invoice" and keep its numbering separate from your tax invoice series so it can never be mistaken for the real thing.
When you must issue a tax invoice — and by when
A tax invoice is mandatory once a taxable supply happens. The timing rules under Section 31 are specific:
- Goods: on or before removal (where movement is involved) or delivery.
- Services: within 30 days of supply (45 days for banks, insurers and most NBFCs).
- Advances received for services: issue a receipt voucher, not a tax invoice, at the time of receipt.
Other thresholds worth holding in muscle memory: a registered person must show the recipient's GSTIN, and for B2C supplies the dynamic QR code requirement applies to businesses above the prescribed turnover. E-invoicing (IRN from the IRP) is mandatory for taxpayers with aggregate turnover above INR 5 crore, and the 30-day reporting window to the IRP applies to those covered taxpayers. A proforma is never reported to the IRP — only the tax invoice is.
The mistakes that cost time
The recurring errors are predictable, and each one shows up later in reconciliation.
- Treating a proforma as proof of supply. No proforma supports ITC; a client who books credit against one will face a GSTR-2B mismatch.
- Converting carelessly. When the deal closes, raise a fresh tax invoice with a proper serial number and the actual supply date — do not just relabel the proforma.
- Collecting payment on a proforma without a receipt voucher. Advance on services triggers the receipt-voucher requirement even before the tax invoice.
- Mixing numbering series. Tax invoice numbers must be consecutive and unique for the financial year; proforma numbers must sit outside that series.
Rule of thumb: a proforma asks for the order, a tax invoice records the supply — never let one stand in for the other.
How Bizotic One helps
Bizotic One keeps your quotations and statutory invoices in one workspace, so a proforma can be converted into a properly numbered, GST-compliant tax invoice with the correct supply date in a click — no relabelling, no broken series. With invoicing, GST filing, client CRM and team tasks under one roof, the document that reaches the client matches the entry in your returns, and reconciliation stops being a monthly scramble.