Proforma Invoice vs Tax Invoice: Which One to Send, and When

What a proforma invoice actually is

A proforma invoice is a commitment to supply on stated terms. It tells the buyer what they will be charged if they proceed, lets them raise a purchase order or arrange finance, and lets them see the tax that will apply. It appears nowhere in the CGST Act, because it is a commercial instrument rather than a statutory one.

Consequently it creates no output tax liability for you and no input tax credit for your customer. It is not reported in GSTR-1, and it does not appear in anyone's GSTR-2B.

What changes when you issue a tax invoice

A tax invoice fixes the time of supply, which fixes the tax period in which the liability must be discharged. Once issued, the GST on it is payable whether or not the customer has paid you, and whether or not the order ultimately completes.

That is the asymmetry worth understanding: a proforma costs you nothing to issue, a tax invoice costs you the tax immediately.

The sequence that avoids both problems

1. Quotation: an indicative price, freely revisable.

2. Proforma invoice: firm terms, issued so the buyer can raise a purchase order or arrange payment. No GST liability.

3. Advance receipt voucher: issued if you take money before supplying. For services, GST is payable on the advance.

4. Tax invoice: issued at or before removal of goods, or within thirty days of supplying a service. This is the document that carries GST.

5. Credit or debit note: issued afterwards to correct value, rate or quantity.

Advances are where this gets subtle

If you receive money against a proforma invoice before supplying, the proforma does not become a tax invoice, but a liability may still arise. For services, GST is payable on advances received, and you issue a receipt voucher under Section 31(3)(d).

For goods, Notification 66/2017 removed the requirement to pay tax on advances, so the liability arises only on issue of the invoice. Businesses supplying both need to handle the two differently, which is a common source of error in mixed-supply invoicing.

Label it so nobody can mistake it

A proforma invoice should say PROFORMA INVOICE prominently, carry its own numbering series separate from your tax invoice series, state a validity period, and say explicitly that it is not a tax invoice and that no input tax credit may be claimed against it.

The single most common error is reusing the tax invoice series for proformas. That breaks the consecutive numbering Rule 46 requires and creates gaps you will be asked to explain.

Frequently asked questions

### Can I claim input tax credit on a proforma invoice?

No. Section 16(2)(a) requires possession of a tax invoice or debit note issued under Section 31. A proforma invoice is neither, so no credit arises against it. The credit becomes available only when the supplier issues a tax invoice and reports it, so that it appears in your GSTR-2B.

### Is a proforma invoice legally binding?

It is an offer rather than a demand for payment. It can create contractual obligations once accepted — if the buyer places an order on its terms, those terms generally govern — but it is not a debt instrument and cannot found a recovery claim the way a tax invoice can.

### Do I report a proforma invoice in GSTR-1?

No. GSTR-1 reports outward supplies evidenced by tax invoices, credit notes and debit notes. A proforma is not a supply document and is not reported anywhere in the GST returns.

### Can a proforma invoice be converted into a tax invoice?

Not converted — replaced. When the supply actually happens you issue a fresh tax invoice from your tax invoice series, with its own number and date, carrying all the Rule 46 particulars. Referencing the proforma number on it is good practice for the buyer's reconciliation but has no statutory effect.