Proforma Invoice vs Tax Invoice: What Is the Difference?
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Many freelancers and small businesses send a proforma invoice when a client asks for “something to pay against”, then wonder whether they must also send a tax invoice later. The two documents look alike but do different jobs. This guide explains proforma invoice vs tax invoice in plain language: what each is, when to issue one or the other, what a GST tax invoice must contain, how proforma invoices are used for advances and exports, and how to avoid the common mix-ups.
This is general information, not tax advice. Invoro does not currently generate GST tax invoices, and this page describes the documents so you can discuss them with your accountant.
The core difference
A proforma invoice is a preliminary document that tells the buyer what the final invoice will look like. It is sent before the supply is complete or before payment, usually so that the buyer can approve the price, arrange funds, obtain a purchase order or make an advance payment. A tax invoice is the final, formal document issued for a supply. It records the sale for accounting and tax purposes. A proforma invoice does not replace it: once you supply the goods or services, you issue the tax invoice, if you are required to.
What a proforma invoice is used for
- Advance payments: a client pays a deposit against the proforma before work begins.
- Approvals: a buyer's finance team uses it to raise a purchase order or release funds.
- Exports and customs: exporters send a proforma invoice for the importer to arrange payment, a letter of credit or an import licence.
- Quotes with detail: it shows the exact line items, rates and taxes expected on the final invoice.
Give it a clear title, such as “Proforma Invoice”, and a note that it is not a tax invoice. Number it from its own series so that it never disrupts your sequence of tax invoices.
What a tax invoice contains
A tax invoice issued by a GST-registered supplier must contain the details prescribed under the GST rules, including the supplier's name, address and GSTIN, a unique serial number and date, the recipient's details, a description of the goods or services with the applicable classification code, the quantity, the value, the rate and amount of tax and the total. The exact list depends on the type of supply and on the buyer, and it has changed over time, so your accountant should confirm the current requirements. Suppliers who are not registered do not issue tax invoices and cannot charge GST; they issue ordinary invoices or bills instead.
Side-by-side comparison
| Point | Proforma invoice | Tax invoice |
|---|---|---|
| Purpose | Preliminary document for approval or advance | Final record of a supply |
| When issued | Before supply or payment | On supply, within the time the rules allow |
| Legal effect | Not a final demand for tax; an offer or request | Basis for tax liability and, for a buyer, input tax credit |
| Accounting entry | Usually none | Recorded in sales and purchase books |
| Number series | Separate series | Continuous series within the financial year |
| Used for | Advances, approvals, customs, quotes | Sales, tax returns and credit claims |
How to use both in one project
For a project that starts with an advance, send a proforma invoice for the advance amount, receive the payment, then issue the tax invoice for the supply when it is made, showing the advance as already paid. If you are GST-registered, your accountant will tell you whether the advance needs a receipt voucher at the time you receive it, as the rules for advances differ between goods and services. For an export, the proforma invoice lets the buyer arrange foreign exchange, and the final commercial invoice or export invoice follows the shipment or delivery of the service.
Common mistakes
- Calling a proforma invoice a “tax invoice” and charging tax on it.
- Giving a proforma invoice a number from the tax invoice series.
- Forgetting to issue the final tax invoice after the supply.
- Not showing the advance on the final invoice.
- Sending a proforma invoice without a validity period or payment terms.
- Charging GST when you are not registered.
Keeping the documents straight
Use separate number series, clear titles and a short note on the document explaining its status. Keep a file for each project containing the quotation, the proforma, the advance receipt and the final invoice, so that anyone reviewing it can follow the sequence. Our guides on invoice numbering and on advance payments cover the details of each step.
Frequently asked questions
Is a proforma invoice a legal document?
It is a business document, usually an offer or request for payment, but it is not the final tax document for a supply. The tax invoice is the formal record.
Can I claim input tax credit on a proforma invoice?
Generally no. Credit is claimed against a valid tax invoice, so ask your accountant how it applies to your case.
Do I need to send both a proforma and a tax invoice?
Not always. A proforma invoice is optional and useful for advances, approvals and exports. A registered supplier must issue a tax invoice for taxable supplies.
What should a proforma invoice say?
The title Proforma Invoice, a note that it is not a tax invoice, both parties' details, the line items, rates, total, validity and payment instructions.
How is it used in exports?
An exporter sends it so the importer can arrange payment or a letter of credit. A commercial invoice follows when the goods are shipped or the service is delivered.