If you’ve ever sent a customer an estimate before the actual bill, you’ve likely used a proforma invoice — even if you didn’t call it that. Many business owners mix it up with a tax invoice. This guide explains the difference in plain language, so you always send the right document at the right time.
What is a proforma invoice?
A proforma invoice is a preliminary bill or estimate you send to a customer before the sale is finalised. It shows what the goods or services will cost — including the expected GST — so the buyer can review, approve, or arrange payment.
Key point: it is not a legal or tax document. It doesn’t record a sale, doesn’t create any GST liability, and isn’t a demand for payment. It’s essentially a formal quotation.
You’d typically use a proforma invoice to:
- Give a customer a price estimate before confirming an order.
- Get internal approval or a budget sign-off from the buyer.
- Negotiate or request an advance before you dispatch goods.
What is a tax invoice?
A tax invoice is the actual, legal bill you issue when the sale happens — when goods are supplied or services delivered. Under GST, it’s the official document that:
- Creates your GST liability (the tax you must pay to the government).
- Lets your buyer claim input tax credit (ITC).
- Is recorded in your books and reported in your GST returns.
- Carries a unique, consecutive invoice number.
In short, the tax invoice is the one that actually counts for tax and accounting.
Proforma invoice vs tax invoice: the key differences
Rule of thumb: a proforma invoice says “here’s what it will cost”; a tax invoice says “here’s what you owe.”
| Aspect | Proforma Invoice | Tax Invoice |
|---|---|---|
| Purpose | Estimate / quotation before the sale | Actual bill after the sale |
| When issued | Before goods/services are supplied | When goods/services are supplied |
| Legal status | Not a legal document | Legal GST document |
| GST liability | None | Yes — creates tax liability |
| Input tax credit | Cannot be claimed | Buyer can claim ITC |
| Demand for payment | No — just an estimate | Yes — payable bill |
| Invoice number | Not part of the tax invoice series | Unique, consecutive number |
| Recorded as a sale | No | Yes — entered in books & returns |
When should you use each?
| Situation | Send this |
|---|---|
| Customer asks “how much will this cost?” | Proforma invoice |
| You need approval or an advance before dispatch | Proforma invoice |
| Goods are delivered / service is done | Tax invoice |
| You’re recording the sale and paying GST | Tax invoice |
Does a proforma invoice have GST?
A proforma invoice can display the expected GST so the buyer sees the likely total — but it does not create any GST liability, and the buyer cannot claim input tax credit on it. Only the tax invoice does both. So think of the GST on a proforma as informational, not official.
How a proforma invoice becomes a tax invoice
The flow is simple:
- Send a proforma invoice with the estimated items, prices and GST.
- The customer reviews and confirms the order (and may pay an advance).
- You supply the goods or services.
- You issue a tax invoice — with a unique invoice number and the actual GST. This is now the legal bill, recorded in your books and returns.
Make both effortless
Need a tax invoice right now? Use our free GST Invoice Generator — fill a quick form, preview it live, and download the PDF. And with KhataBuddy you can share a clean estimate with a customer and raise a fully GST-compliant tax invoice in seconds — with the correct HSN code and GST rate applied automatically, ready to send on WhatsApp. Try KhataBuddy free.
Related reading
- What Is an HSN Code?
- CGST, SGST & IGST: What’s the Difference?
- Work out the tax on any amount with the GST Calculator.