What is a Tax Invoice – Invoicing Basics Made Clear

What is tax invoice

Confused between invoice and tax invoice? Well, both are legal documents and include similar information then how does a tax invoice differ from a regular invoice?

Just to explain in brief – A tax invoice is an invoice that contains the amount of tax payable, in addition to all standard invoice information. It shows the goods and services tax, commonly recognized as GST. It’s not just the evidence of goods and services supplied but also crucial for the tax-registered people to claim the input tax credit.

Topics like such certainly require detailed knowledge. To make this commercial document a bit more clear and understandable, go through this article.

What is a tax invoice?

Tax invoice is a legal document sent by a tax registered dealer to another in order to claim the input tax credit. Any business registered for GST has to send a tax invoice for every taxable sale that takes place. This invoice shows the taxes applied to the goods and services.

A tax invoice acts as a summary invoice that is useful for reporting GST or HST on a monthly, quarterly or annually basis. The significance and purpose of tax invoice vary from country to country.

If you are not a tax-registered business then you may not charge GST and so there is no need to issue a tax invoice. You can simply send a standard invoice.

Difference between invoice and tax invoice

Both are legal documents that serve as the proof of sale and notifies the buyer of the payment to be made. However, the tax invoice also offers an additional purpose. The major difference and additional information served by the tax invoice is that it includes Good and Service Tax (GST).

Tax invoice is issued by a tax registered business vendor or seller to another while supplying the goods or services whereas a standard invoice or a retail invoice is issued by the business vendor to the end customer during the sale.

If the tax invoice is crucial for claiming tax credits then a standard invoice is crucial for requesting payment from the customer against the goods and services that are provided.

No matter which type of invoice you use, it is essential as a business to maintain a complete record of the sales document.

What to include on a tax invoice?

If you are a GST registered business then your legitimate tax invoice should mandatorily include the following:

  • Unique tax invoice number
  • Tax invoice date
  • The term ‘tax invoice’ clearly displayed on the invoice
  • Supplier’s/Business vendor’s name, address and GST Identification Number (GSTIN)
  • Customer’s name and address
  • Customer’s GSTIN (if they are tax registered)
  • Description of goods and services (number, unit, quantity, price)
  • GST rate that is applicable
  • Total cost including taxes
  • Delivery address or shipping address
  • Supplier’s signature

How to create a tax invoice?

Usually, the template which you use for the regular invoice can be the same used for a tax invoice. Only some additional details as mentioned above should be added. You can either make a tax invoice using a word document or get it created by any online invoicing software. Here is what a typical tax invoice format include:

  • The term ‘Tax Invoice’ should be displayed as header
  • Business details like the company logo, name, address, phone number, email id will appear on the right side of the header
  • On the left side of the header, customer’s information – name, address, phone number should be shown
  • On the right-hand side, add invoice issued date, your unique invoice number and also the invoice due date
  • The main body of the invoice should include the breakdown of products and services offered like quantity, description and cost of each
  • Along with total amount, also add the taxes applicable, delivery fees and any other fees relevant
  • Make sure to make the grand total appear bold and easily visible
  • You can also include terms and conditions, payment method and other necessary details on the tax invoice

What is a recipient created tax invoice?

The tax invoice that is created by the receiver (buyer) of goods or services instead of the supplier is known as a recipient created invoice. However, this type of invoice can be issued only when there is a written agreement between the supplier and the recipient.

Another crucial point to include in such a tax invoice is the term, ‘Recipient Created Tax Invoice’ instead of only ‘Tax Invoice’. It is also important for the recipients to have the original or copy of such tax invoices as it can serve for tax purposes.

The recipient created a tax invoice should be issued by the recipient to the supplier within 28 days of the deal.

Why is a tax invoice necessary?

The main purpose of tax invoice as mentioned throughout the article is to help in tax credits. It is actually a mandatory document necessary for availing tax credits. Tax invoice plays a major role in the effective functioning of the GST system.

This invoice also determines that the goods and services should be provided within the taxable period. In the case of accounting, tax invoices help to provide financial relief while in government, it is necessary for preventing tax evasion. No matter what, the tax invoice should always be issued on time.

Do I need to send a tax invoice?

It all depends on if you are GST registered or not. If your business is GST registered, after the sale is made, you need to send your customer a tax invoice. If you aren’t GST registered, you can send a standard invoice to your customer. However, if the customer demands a tax invoice, then you can send an invoice simply stating that no GST is due on purchase or mention GST amount as ‘0’.

I have customers abroad. Should I send a tax invoice or a regular invoice?

There is usually no need to add GST on invoices which you send to customers abroad. Since there is no tax involved, no need to issue a tax invoice. Instead, issue a regular invoice.

Regular invoices or tax invoices, the invoicing process can be much easier and quick with online invoicing software. It calculates and automates most of the billing process and also saves a lot of time that you can otherwise invest in your business growth.

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