Proforma Invoice vs Tax Invoice: What Changes Under GST

Businesses use the words "proforma" and "tax invoice" every day, often loosely. Under GST, the difference is sharp. One is a pre-sale commercial document with no legal tax status. The other is the statutory document that records a supply, fixes tax and lets your buyer claim credit.

This guide explains where each fits in a sale, what each should contain, how advances interact with proformas, and how to convert a proforma into a tax invoice without breaking your numbering. If you are also deciding between a quotation and an estimate, read quotation vs estimate vs invoice.

What is a proforma invoice?

A proforma invoice is a document sent before a supply, showing what the invoice will look like if the buyer goes ahead: items, quantities, prices, expected tax, delivery terms and payment terms. "Pro forma" means "as a matter of form".

Common uses:

• Getting internal approval or a purchase order from the buyer
• Arranging an advance payment
• Supporting a bank's letter of credit or a foreign buyer's import paperwork
• Fixing price and terms for a large or custom order

GST law does not mention proforma invoices anywhere in Section 31 or Rules 46 to 55. They are commercial documents, not tax documents.

What is a tax invoice?

A tax invoice is the document Section 31 requires a registered person to issue for a taxable supply. For goods it is issued before or at the time of removal (where goods move) or delivery. For services it is issued before or after the service, within the prescribed period, which Rule 47 sets at 30 days from the date of supply (45 days for banks, insurers and NBFCs).

It must carry all the particulars in Rule 46, such as GSTIN, HSN/SAC, taxable value, rate and tax by head, and place of supply. It is reported in GSTR-1, and the buyer uses it to claim input tax credit. The full field list is in mandatory fields in a GST invoice.

Proforma invoice vs tax invoice: side-by-side

Point	Proforma invoice	Tax invoice
Legal basis under GST	None; commercial document	Section 31, Rule 46
When issued	Before supply, before order confirmation	At or around the time of supply, per Section 31 and Rule 47
Creates tax liability?	No	Yes, records tax payable on the supply
Reported in GSTR-1?	No	Yes
Buyer's ITC	Not available	Available, subject to conditions
E-invoice/IRN	Not applicable	Required for notified taxpayers on B2B supplies
Numbering	Any series (keep separate)	Consecutive, ≤16 characters, unique per financial year
Can change after issue?	Yes, freely revised	Corrected only via credit/debit notes or return amendments
Title on document	"Proforma Invoice"	"Tax Invoice"

Where does each sit in the sales cycle?

A typical B2B sale moves through these steps:

1. Enquiry from the buyer
2. Quotation with indicative price
3. Proforma invoice with firm price, tax, and payment terms
4. Purchase order from the buyer
5. Advance payment (if agreed), with a receipt voucher
6. Dispatch or service delivery, with a tax invoice (and e-way bill if needed)
7. Balance payment

The proforma sits at step 3. The tax invoice comes at step 6. Steps in between, especially the advance, are where GST mistakes happen.

How do advances against a proforma work under GST?

When a buyer pays an advance against a proforma, Section 31(3)(d) requires the supplier to issue a receipt voucher (or other document) evidencing the payment. The proforma itself does not serve that purpose.

Whether GST is payable on the advance depends on the type of supply:

• Services: time of supply rules generally make GST payable on an advance when it is received, so the advance is taxed in that period.
• Goods: GST on advances for goods was removed by notification in 2017 for most taxpayers, other than composition taxpayers, so tax is generally paid when the invoice is issued.

If no supply follows, Section 31(3)(e) allows a refund voucher against the advance. Advances are covered in depth in advance payment under GST, and timing in time of supply under GST.

Worked example: proforma, advance and final tax invoice

A Pune software services firm (registered in Maharashtra) quotes a registered client in Pune for a custom inventory module.

Proforma invoice PI/26-27/0018, 1 August 2026

• Software development services, SAC 9983: ₹4,00,000
• CGST 9%: ₹36,000; SGST 9%: ₹36,000
• Total: ₹4,72,000
• Terms: 40% advance, balance on delivery

Advance, 5 August 2026

The client pays 40% of ₹4,72,000 = ₹1,88,800. Treating the amount as GST-inclusive at 18%:

• Taxable value of advance = 1,88,800 ÷ 1.18 = ₹1,60,000
• CGST 9% = ₹14,400; SGST 9% = ₹14,400

The firm issues receipt voucher RV/26-27/0009 and, as this is a service, pays ₹28,800 GST on the advance in August.

Delivery, 20 September 2026

The firm issues tax invoice INV/26-27/00142 for the full value:

• Taxable value ₹4,00,000; CGST ₹36,000; SGST ₹36,000; total ₹4,72,000
• Less: advance adjusted ₹1,88,800 (tax already paid: ₹28,800)
• Balance receivable: ₹2,83,200
• Tax payable in September on the balance = 72,000 − 28,800 = ₹43,200

The client claims ₹72,000 input tax credit on the tax invoice, not on the proforma or the receipt voucher. Check numbers with the GST calculator.

How do you convert a proforma into a tax invoice?

1. Confirm final quantities, prices and delivery address with the buyer.
2. Check the tax rate against the current schedule; rates may have changed since the proforma.
3. Check the place of supply; if the delivery state changed, the tax head changes too.
4. Issue the tax invoice from your tax invoice series, not by renaming the proforma.
5. Reference the proforma number and purchase order number in a remarks field, if useful.
6. Adjust any advance received and show the balance.
7. Generate the IRN (if you are an e-invoice taxpayer) and the e-way bill (if goods move and the value calls for one).

Billing Software by Betterwork lets you convert a proforma into a tax invoice with one action, pulling items across but assigning the next number in the tax invoice series and recalculating tax.

What should a good proforma invoice include?

Because the law does not prescribe its contents, the aim is clarity:

• Title: "Proforma Invoice" and a line saying "This is not a tax invoice"
• Your name, address and GSTIN; buyer's name, address and GSTIN
• Proforma number and date, plus validity date
• Item description, HSN/SAC, quantity, unit price, discount
• Expected GST rate and amount, by head
• Delivery terms, lead time and payment terms
• Bank details or a UPI/payment link for advances

You can start from the proforma layouts in invoice templates.

Proforma invoices for goods: a second worked example

Goods follow a slightly different path because the tax invoice must be issued before or at the time of removal where goods move. A Ludhiana bicycle parts maker sends a proforma to a registered dealer in Lucknow, Uttar Pradesh (inter-state):

Proforma PI/26-27/0052, 4 September 2026

• 500 sets of brake assemblies at ₹420 = ₹2,10,000
• 300 chain sets at ₹350 = ₹1,05,000
• Taxable value ₹3,15,000; IGST at 18% = ₹56,700; total ₹3,71,700
• Terms: 25% advance, balance within 30 days of delivery

The dealer pays 25% of ₹3,71,700 = ₹92,925 on 8 September. The maker issues a receipt voucher. For goods, GST is generally not payable at the advance stage for regular taxpayers, so the tax arises when the invoice is issued.

On 22 September, the dealer changes the order to 450 brake sets. The maker does not edit the proforma into a tax invoice; it issues tax invoice INV/26-27/00388 at the time of dispatch:

• 450 × 420 = ₹1,89,000 plus 300 × 350 = ₹1,05,000, taxable value ₹2,94,000
• IGST 18% = ₹52,920; total ₹3,46,920
• Less advance ₹92,925; balance ₹2,53,995

The proforma did its job, fixing price and terms, and then dropped out of the picture. Only the tax invoice goes into GSTR-1, and only the tax invoice supports the dealer's ₹52,920 credit. An e-way bill also goes with the goods, generated against the tax invoice, not the proforma.

Can a proforma be cancelled or revised freely?

Yes. Because a proforma has no tax status, you can revise it as often as the negotiation needs: change quantities, prices, delivery dates or terms. Good practice is still to:

• give each revision a suffix in your own records (for example PI/26-27/0052-R1) so everyone knows which version was approved;
• mark superseded versions as such; and
• keep the approved version with the purchase order, because it is the commercial basis for the sale.

None of this needs reporting under GST. The contrast with a tax invoice is complete: once a tax invoice is issued and reported, it can be corrected only through a credit note, a debit note or a return amendment. See credit note under GST.

Common mistakes

• Numbering proformas in the tax invoice series, leaving gaps when orders do not convert.
• Buyers booking ITC on a proforma. It is not a tax invoice; credit is not available.
• Printing "Tax Invoice" on a proforma to satisfy a bank or a buyer's procurement desk.
• Not issuing a receipt voucher when an advance is received.
• Ignoring GST on service advances because "the invoice has not been raised yet".
• Copying old rates from a months-old proforma into the final invoice.
• Reporting proformas in GSTR-1.

Key takeaways

• A proforma invoice is a commercial pre-sale document with no GST status.
• A tax invoice is the statutory document that records the supply and supports ITC.
• Advances need a receipt voucher; for services, GST is usually due on the advance.
• Keep proformas in their own number series.
• Issue the final tax invoice fresh from the tax invoice series, with current rates.

This guide is general information, not tax advice. Rules last checked on 20 October 2026; confirm with your tax professional for your situation.