A tax invoice is issued for taxable supplies and shows GST charged, so the registered buyer can claim input tax credit. A bill of supply is issued under Section 31(3)(c) instead of a tax invoice when the supply is exempt or the supplier pays tax under the composition scheme. It carries no GST amount and gives the buyer no input tax credit.
GST law gives a registered business two different sale documents. A tax invoice charges GST and passes input tax credit to the buyer. A bill of supply records a sale where no GST is charged, either because the goods or services are exempt or because the seller is a composition dealer.
Picking the wrong one is not a cosmetic slip. A composition dealer who issues a "tax invoice" with GST shown on it creates a tax problem, and a regular dealer who issues a bill of supply for a taxable sale has under-billed tax. This guide sets out who issues which document, how the formats differ, and how to handle mixed sales.
What is a tax invoice under GST?
A tax invoice is the document required by Section 31(1) and 31(2) of the CGST Act when a registered person supplies taxable goods or services. Its contents are listed in Rule 46 of the CGST Rules, and include the GSTIN of both parties, HSN/SAC, taxable value, rate of tax and the tax amount split into CGST, SGST/UTGST, IGST and cess.
The tax invoice matters to the buyer because it is the primary document for claiming input tax credit. Without a valid tax invoice, a registered buyer generally cannot take credit of the GST paid. A full walkthrough of the layout is in GST invoice format.
What is a bill of supply?
Section 31(3)(c) says a registered person supplying exempted goods or services, or paying tax under section 10 (the composition scheme), shall issue a bill of supply instead of a tax invoice. Its contents are listed in Rule 49:
- Name, address and GSTIN of the supplier
- Consecutive serial number up to 16 characters, unique for the financial year
- Date of issue
- Name, address and GSTIN/UIN of the recipient, if registered
- HSN code for goods or services
- Description of goods or services
- Value of supply, taking discount or abatement into account
- Signature or digital signature of the supplier or authorised representative
Notice what is missing: no rate of tax, no tax amount, no place of supply, no reverse charge line. Rule 49 also says any tax invoice or similar document issued under any other law for a non-taxable supply is treated as a bill of supply for GST purposes.
Tax invoice vs bill of supply: side-by-side comparison
| Point | Tax invoice | Bill of supply |
|---|---|---|
| Legal basis | Section 31(1)/(2), Rule 46 | Section 31(3)(c), Rule 49 |
| Who issues | Regular registered person making taxable supplies | Registered person making exempt supplies, or a composition taxpayer |
| GST charged | Yes, shown by tax head | No |
| Rate and tax amount | Mandatory | Not shown |
| Buyer's input tax credit | Available, subject to conditions | Not available |
| HSN/SAC | Mandatory (digits per turnover) | Mandatory |
| Place of supply | Required for inter-state supplies | Not listed |
| Reverse charge line | Required | Not listed |
| Signature | Required (not needed for electronic documents under the IT Act) | Same rule |
| Small-value relief | Below ₹200 to an unregistered buyer who does not need it, with daily consolidated invoice | Same relief under proviso to 31(3)(c) |
Who must issue a bill of supply?
Composition taxpayers
A business registered under the composition scheme pays tax at a fixed rate on turnover and cannot charge GST to customers. Every sale, whether the goods are taxable or not, is billed on a bill of supply. Many composition dealers also print "composition taxable person, not eligible to collect tax on supplies" on their documents, which is a requirement under the composition rules. More on the scheme in composition scheme under GST.
Regular dealers selling exempt goods or services
A regular taxpayer who sells exempt items, such as fresh vegetables or certain unbranded food grains, issues a bill of supply for those sales. If the same dealer also sells taxable items, those go on a tax invoice.
Nil-rated and non-GST items
Nil-rated supplies attract a 0% rate and non-GST supplies (for example, alcoholic liquor for human consumption) fall outside GST. Neither carries GST, so a tax invoice with tax columns is the wrong document. A bill of supply is the usual record for these.
Not for exports
Zero-rated exports are a different case. Exports are taxable supplies at zero rate, and Rule 46 has a specific proviso for export invoices with an endorsement. They are billed on a tax invoice, not a bill of supply. See export invoice under LUT.
Worked example: one shop, three customers
A Nagpur grocery and provisions store is a regular GST taxpayer. On one morning it makes three sales.
Sale 1: exempt items only. A customer buys 10 kg fresh onions at ₹40/kg and 5 kg potatoes at ₹30/kg.
- Value = (10 × 40) + (5 × 30) = 400 + 150 = ₹550
- No GST. The shop issues a bill of supply for ₹550.
Sale 2: taxable items only. A local café (registered, same state) buys 20 packs of branded biscuits at ₹50 each, taxed at 5%.
- Taxable value = 20 × 50 = ₹1,000
- CGST 2.5% = ₹25, SGST 2.5% = ₹25
- Total = ₹1,050, issued on a tax invoice so the café can claim ₹50 credit.
Sale 3: mixed basket. Another customer buys 5 kg fresh tomatoes at ₹30/kg (exempt) and 2 bottles of cleaning liquid at ₹200 each (taxable at 18%).
- Exempt part = ₹150
- Taxable part = ₹400; CGST 9% = ₹36; SGST 9% = ₹36
- Total = 150 + 400 + 36 + 36 = ₹622
For sale 3 the shop can issue one combined document that clearly separates the exempt line (no tax) from the taxable line (with tax), or issue two separate documents. Either way, the GST must be computed only on ₹400.
What if the store were a composition dealer? Then all three sales would be on bills of supply with no GST shown, and the café in sale 2 would get no input tax credit.
How do you decide which document to issue?
Use this check before every sale:
- Are you registered under the composition scheme? If yes, always issue a bill of supply.
- Is every item in this sale exempt, nil-rated or non-GST? If yes, issue a bill of supply.
- Is every item taxable (including zero-rated exports)? If yes, issue a tax invoice.
- Is it a mix? Issue a combined document that separates taxable and exempt lines, or split the sale into a tax invoice and a bill of supply.
- Is the value under ₹200 and the buyer unregistered and not asking for a document? You may skip the individual document, but you must issue a consolidated one at the end of the day.
Billing software makes this automatic if each product is tagged with its GST rate and exemption status. In Billing Software by Betterwork, a product marked exempt never picks up tax, and a mixed cart prints both sections correctly.
Does the numbering series need to be separate?
The law requires each document to have a consecutive serial number unique for the financial year, "in one or multiple series". So you may run bills of supply in their own series (for example "BOS/26-27/0001") or share a series with tax invoices. A separate series makes GSTR-1 document summaries and audits cleaner. More on series in GST invoice number series rules.
What happens if you issue the wrong document?
- Tax invoice for an exempt item, with tax charged: you have collected an amount as tax that was not payable. Under GST, any amount collected as tax must be paid to the government, so you create a liability and a dispute with the customer.
- Bill of supply for a taxable item: you still owe the tax on the taxable value, and your registered buyer loses the credit. You will need to issue a proper tax invoice or a correcting document.
- Composition dealer charging GST: a composition dealer is not allowed to collect tax. This can lead to the tax collected being recovered along with penalties, and may affect eligibility for the scheme.
Corrections after the fact are messy, which is why the decision belongs at the item master, not at the billing counter.
What does a bill of supply look like on paper?
A compliant bill of supply for the Nagpur store's sale 1 would show: the store's name, address and GSTIN; the title "Bill of Supply"; a number such as BS/26-27/0412; the date; the customer's name (and GSTIN if registered); each item with its HSN code, description, quantity and value; the total of ₹550; and a signature or an electronic issue. There are no tax columns, no rate and no tax total. Composition dealers add their composition declaration at the top. You can start from the bill of supply layout in invoice templates.
Common mistakes
- Composition dealers using a regular invoice template with CGST/SGST columns.
- Printing "Tax Invoice" on a bill that shows no tax.
- Adding GST to a bill of supply "to round off" the total.
- Treating exports as exempt and issuing a bill of supply instead of a tax invoice with the export endorsement.
- Forgetting HSN codes on bills of supply because "there is no tax".
- Mixing exempt and taxable items on one line or under one total, so the tax base is unclear.
Key takeaways
- Tax invoice = taxable supply with GST shown; the buyer can claim ITC.
- Bill of supply = exempt supply or composition dealer; no GST, no ITC.
- Both need serial numbers, dates, HSN codes and a signature.
- Exports are taxable at zero rate and go on a tax invoice, not a bill of supply.
- Decide document type by product tagging and registration type, not at the counter.
This guide is general information, not tax advice. Rules last checked on 20 October 2026; confirm with your tax professional for your situation.