Bill of Supply vs Tax Invoice Under GST: When to Issue, Rules & Formats
Akash Kore
· Founder & Product Architect· 6 min read
Under Indian GST law, every transaction must be documented by a compliant commercial document. However, not every billing document is a 'Tax Invoice'. Small traders operating under the Composition Scheme and suppliers of wholly exempt goods are legally prohibited from issuing tax invoices or charging GST. Issuing a tax invoice when you should issue a Bill of Supply (or vice versa) can lead to penalties for unauthorized tax collection under Section 76. Here is the legal breakdown.
- ✓A Tax Invoice is issued by regular registered taxpayers for taxable supplies and allows the recipient to claim Input Tax Credit (ITC).
- ✓A Bill of Supply is issued under Section 31(3)(c) by composition dealers or suppliers of exempt goods/services; it cannot charge GST and cannot be used for ITC.
- ✓Composition dealers must explicitly state on every Bill of Supply: 'Composition taxable person, not eligible to collect tax on supplies'.
- ✓Under Rule 46A, a registered person supplying both taxable and exempt goods to an unregistered person can issue a consolidated 'Invoice-cum-Bill of Supply'.
What is a Bill of Supply under Section 31(3)(c)?
Under Section 31(3)(c) of the CGST Act, a registered taxable person must issue a Bill of Supply instead of a Tax Invoice in two statutory scenarios:
1. Composition Taxable Persons: Taxpayers registered under the Composition Scheme (Section 10 of the CGST Act) paying a flat turnover tax (1% for manufacturers/traders, 5% for restaurants, 6% for service providers).
2. Suppliers of Exempt Goods or Services: Taxpayers supplying goods or services that are wholly exempt from GST under Section 11 (e.g. fresh fruits, unbranded food grains, healthcare, basic education).
Bill of Supply vs Tax Invoice: Comparative matrix
Here is how both instruments compare under the CGST Rules:
| Attribute | Bill of Supply | Tax Invoice |
|---|---|---|
| Governing Rule | Rule 49 of CGST Rules | Rule 46 of CGST Rules |
| Who Issues | Composition dealers & exempt goods suppliers | Regular registered GST taxpayers |
| Tax Collection | Strictly prohibited from collecting GST | Mandatorily calculates and collects CGST/SGST/IGST |
| Input Tax Credit (ITC) | Buyer cannot claim any ITC | Buyer claims 100% eligible ITC in GSTR-2B |
| Mandatory Heading | 'BILL OF SUPPLY' | 'TAX INVOICE' |
| Special Declaration | 'Composition taxable person, not eligible to collect tax' | None (or E-Invoice / LUT declaration) |
Invoice-cum-Bill of Supply under Rule 46A
Under Rule 46A of the CGST Rules, where a registered person is supplying taxable as well as exempted goods or services to an unregistered person (B2C), a single 'Invoice-cum-Bill of Supply' may be issued.
This avoids having to print two separate receipts for a single customer transaction (for example, a retail pharmacy selling taxable cosmetics and tax-exempt life-saving medications simultaneously).
Section 76 Warning: Unauthorized Tax Collection
If a composition dealer or exempt supplier mistakenly charges GST on a bill, Section 76 mandates that they must immediately deposit that collected tax with the government, along with penalties. Ignorance of the law is not accepted as a defense.
Mandatory particulars on a Bill of Supply (Rule 49)
Under Rule 49, a valid Bill of Supply must contain: consecutive serial number (up to 16 characters, unique for FY), date of issue, name, address and GSTIN of supplier, recipient details (if registered), HSN/SAC code, description of goods/services, total value of supply, and signature or digital signature.
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Frequently Asked Questions
Can a composition dealer collect GST from customers?
No. Under Section 10(4) of the CGST Act, a composition dealer is strictly prohibited from collecting any GST from the recipient. They must pay tax out of their own pocket and cannot issue a tax invoice.
Can a customer claim ITC on a Bill of Supply?
No. A Bill of Supply contains zero tax and does not qualify as a valid document to claim Input Tax Credit under Section 16(2) of the CGST Act.
Is HSN code mandatory on a Bill of Supply?
Yes. Rule 49 mandates the inclusion of HSN or SAC codes on a Bill of Supply, adhering to the same 4-digit or 6-digit turnover guidelines established under Notification No. 78/2020.
Is a Bill of Supply required if value is less than ₹200?
Under the proviso to Rule 49, a Bill of Supply is not required if the value of goods or services is less than ₹200, unless the recipient requests such a bill. The supplier can issue a consolidated Bill of Supply at the end of each day.
Akash Kore
Founder & Product ArchitectArchitecting business document operating systems and automated billing workflows for Indian SMBs, agencies, and enterprises.