What is a proforma invoice and how to do one in GST?

Get more information on proforma and a sample format of a proforma invoice in GST.

In a nutshell, proforma invoices are issued to commit to supplying to a buyer goods or services at certain prices. A proforma is like a replica or a sample of an invoice that is going to be issued in the future for the same products / services. When you issue a proforma you will not need to actually pay GST for this document alone, as it will be paid for the GST invoice that you generate from it.

What is the meaning of proforma invoice?

A proforma invoice is a preliminary invoice of sales that a business sends to buyers in advance of a shipment or delivery of goods / services. This type of invoice typically declares the description, quantity, value, shipping details and charges of the products / services that will be purchased. Since most proforma invoices provide the buyer with a precise sale price, it also estimates any commissions or fees such as applicable taxes. Generally this document represents good faith and avoids exposing the buyer to unexpected or significant charges once the transaction has occurred.

What are the differences between invoice and proforma invoice?

An invoice (GST tax invoice) refers to a non-negotiable document raised by a seller and delivered to a buyer, containing details of products and services that are provided to him. This document is used as a payment request from the buyer and shows the indebtedness of the buyer towards the seller.

Here are the key differences between proforma invoice and invoice:



Time of issue: before placement of order

Time of issue: before payment is made

Creating a sale offer

Confirming a sale offer

Provides information to a potential buyer regarding particulars of goods yet to be received

Establishes what the buyer receives with exact details of products or services and the conditions under which they receive them.

Helps the buyer to make a decision

Informs the buyer of his purchase and responsibilities (payment)

Similar to a quote

Similar to a bill

No entry is made in accounting

An entry is made in the books of accounts

GST proforma invoice format and sample

A GST proforma invoice sample can be seen below. You can make a similar one by using Sleek Bill.

GST Proforma

A properly made GST proforma invoice contains details such as:

  • Name, address and GSTIN of supplier

  • Validity start and end date

  • Name, address and GSTIN (if registered) of buyer

  • HSN / SAC code for goods or services provided

  • Description of goods / services provided

  • Quantity, units, total amount value for goods / services provided

  • Tax rate and breakdown for every item

  • Place of supply

Some individuals might be confused by the difference between a proforma invoice and a regular tax invoice. To make it easier to understand and remember: a tax invoice demands payment from the buyer for the goods or services provided to him, while a proforma invoice is sent to a buyer on his request, before any shipment of goods might happen.

GST Explained

GST, short for Goods and Services tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

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With certain current taxes remaining, the following goods and services will be fully or partially exempted from the GST

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Free movement of goods: Business owners will be able to sell more in other states without having to worry about interstate transaction costs. With GST, the entry tax will be eliminated, which will save time and money spent.

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Currently, there are many indirect taxes that both the state and central governments are collecting on every purchase and sale.

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The GST will follow a similar model with the one before it

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GST will have a 4-tier tax structure

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One of the main reasons for GST being introduced in India is the tax burden that falls both on companies and consumers. With the current tax system, there are multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages. As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied. This cascading structure is too complex and inefficient.

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For inter-state transactions, the Centre will levy Integrated GST (IGST), which is equal to the average of the CGST and SGST rates. After applying IGST, CGST and SGST credits received from purchases, the seller will then pay the remaining IGST on the added value.

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Businesses with turnover revenue of 20 lakhs and above will have to register and file for GST returns, with a threshold of 10 lakhs for businesses in the north east and hill states.

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A combination of CGST and SGST will be applied to the import of goods and services that come to India. Tax benefits and credits will be given to the state where the imported goods and services are consumed.

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