Proforma Invoice Under GST – Meaning, Templates and More!

What does it mean when you receive a bill marked as a proforma invoice? Is it compulsory for the sellers? Does the invoice provide a specific time frame to act upon? Can we pay the GST against a proforma?

The article below will briefly explain everything you need to know about the proforma invoice under GST.

What is a Proforma Invoice? – Meaning

Proforma Invoice is a preliminary sales invoice that contains an estimated price and commission. The invoice is usually sent to an enquiring customer addressing the approximate amount of goods or services yet to be delivered. It also includes estimated costs of shipment, taxes, and commissions (as applicable).

The proforma is more like a replica of a commercial invoice. It rids a buyer/retailer/customer from being exposed to unexpected or unfair charges during the final transaction stage. You need not pay GST for this kind of invoice. Instead, you will only pay tax for a guaranteed GST invoice.

When Does a Seller Issue Proforma Invoices?

As mentioned above, a proforma bill is a pre-sale invoice. A seller issues a proforma on the request of the buyer. For instance, consider a customer purchasing a car. The company will issue a proforma before the sale to confirm the purchase order from the customer.

Once the customer confirms the price, the car is delivered within the estimated delivery date. The customer can then pay the amount as per the actual GST invoice, closer to the proforma bill of supply.

Why Should Companies Use Proforma Invoices? – Purpose

Proforma invoice GST is a preliminary online quotation of the product or service that is to be delivered shortly. Issuing a proforma declares that the seller has agreed to deliver the required items as per the mentioned price.

Proforma templates are mainly used in businesses concerning imports and exports to ensure hassle-free delivery. Here are some of the primary purposes of using proforma bills.

1.       Custom Duty Calculations

The proforma invoices are used mainly in cross-border transactions. The invoice enables companies to calculate the estimated custom duties concerning the specified trade obligations.

2.      Contact Details

The proforma consists of contract details in the document, along with the contact details of the customer. It acts as a contact between both the seller and the buyer. The clarified information in a proforma can be easily copied to an actual GST invoice.

3.      Import and Export

The issue of proforma invoices is not mandated under the law. Yet, businesses prefer using proforma invoices as it provides clarity on trade transactions. Proforma enables both parties to evaluate and understand the possible issues. Like, the cross-border business transactions, currency, exchange rates, and other variables.

Critical Considerations of Proforma Invoice

  • Businesses cannot use proforma documents in their accounting entries.
  • These documents are only pre-sale invoices issued by a seller, expecting confirmation from the buyer. They don’t guarantee sales.
  • It usually does not warrant the GST deductions.
  • Although proforma is similar to the actual GST invoice, a business cannot use it as a substitute.
  • Even proforma invoices must have a specific time-frame mentioned on it. The invoice is considered valid only within the specified period.
  • No transactions must be carried out by the customer based on a proforma.
  • One cannot claim credit or tax liability based on this document.

Proforma Invoice Under GST v/s GST Proforma Invoice

There are not many differences between the GST law and pre-GST law. The format and the content remain the same. However, here are a few significant differences, to mention a few.

The contents of a GST pro forma invoice templates include the GST registration number. Wherein, a former invoice contains sales tax registration number / VAT / ST.

Moreover, a pro forma invoice GST also specifies additional information. It includes the data on the HSN registration code of goods and service code.

GST proforma enables business owners to convert the tax rates into CGST, SGST, and IGST. It applies only to the intra-state and inter-state supplies.

Can We Pay GST Against a Proforma Invoice?

In a nutshell, no, you cannot pay GST against a proforma invoice. GST regime has no provisions of Proforma Invoices. It is only a roughly drafted document sent to the recipient.

As per section 31 CGST act 2017, the GST regime allows the issue of invoices for the following only:

  • Supply of Goods and Services
  • Removal of Goods and Services
  • Making Goods Available

Contents of Proforma Invoice Template

A proforma invoice template usually contains an estimated sales price, quantity, costs, commission, etc. However, here are some of the mandatory contents that a proforma must contain.

  • UIN (Unique Invoice Number)
  • Issued date
  • Contact and contract details (including the GSTIN number, if any)
  • The validity of the invoice
  • Sales terms and payment conditions as per the proposal (if any)
  • A subtotal of the entire purchase order before taxation or deductions
  • Discount, taxation or deduction details (if any)
  • Subtotal of the due amount (if any)
  • Custom Authorities Certifications (if any)
  • Suppliers signature

Conclusion

In Summary, a proforma document is a confirmation request sent to a customer before shipment. But a regular tax invoice is issued demanding payment on a completed deal. We hope you have found answers to all your questions on Proforma Invoice under GST.

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