All about Proforma Invoice under GST

Did you know “pro forma” is a Latin term, which means “for the sake of form” or “as a matter of form”?. If you receive a bill marked as a pro forma invoice, is it binding upon the seller, or does it have a time limit to act upon?. If you’re a supplier, you may have questions about whether the look of a pro forma invoice has changed under Goods and Services Tax (GST)?. This article will help you to clear all your doubts regarding the pro forma invoice.

Meaning of Pro Forma invoice

A pro forma invoice is a document providing information regarding the particulars of the goods or services yet to be delivered to the buyer/customer. It details estimated prices of the available goods or services. It also consists of the estimate of any commissions, applicable taxes, the weight of the shipment, shipping costs etc. A supplier/retailer issues a pro forma invoice to an enquiring buyer/customer.

When is Pro forma invoice used?

A pro forma invoice is made before the sale happens. For example, a supplier will issue a pro forma invoice if a customer requests him to produce a document for goods or services yet to be delivered. Hence, it is usually issued before the issue of tax/commercial invoice.

The final invoice amount will be the same or close to the amount on the pro forma invoice. Pro forma invoices are more often used for customs purposes on imports or exports for a smooth delivery process.

For example, A two-wheeler customer might agree to the price of a bike on the pro forma invoice. The supplier will deliver the bike once it is ready, and the customer will pay when the invoice is received.

Purpose of issuing Pro forma invoice

• To provide estimated sale price of goods yet to be delivered or services yet to be rendered (estimated total cost).
• To provide an understanding of contents to be shipped, the value of the goods, shipping time, etc., to the customer. 
• To declare the supplier’s commitment to the buyer about providing the goods or services described at specified prices

Also, pro forma invoices are helpful when two companies are doing business together for the first time.

Note: The customer must not make any payments on the goods or services detailed. Therefore, the supplier should not record a pro forma invoice as accounts receivable, and the buyer should not record it as accounts payable.

Contents of Pro forma invoice

A pro forma invoice should include the following information:

• Unique invoice number
• Date of preparation/issue
• Address of the supplier
• Address of the prospective buyer
• Description of goods or services, including their unit costs and line-item totals
• Validity of the pro forma invoice
• Proposed terms of sale
• Proposed terms of payment, if any
• Certifications required by “Customs Authorities” if any
• Signature by an authorized person from supplier’s company

Format of Pro forma invoice

No law prescribes the exact format of a pro forma Invoice, but this is issued as part of best business practices. A pro forma invoice may look almost exactly the same as a commercial invoice. However, it should be clearly labelled “pro forma”, and may also include the phrase “This is not a GST invoice”. The pro forma invoice is only an estimate and should not be paid until the work is done and the final tax invoice is issued.

Sample Format of Pro forma invoice underunder Pre-GST laws

Sample format of Pro forma invoice under GST law

Significant changes in Pro forma invoice under GST as compared to Pre-GST Pro forma invoice

Pro forma invoices under pre-GST law and GST law are not much different in format or content. They almost remain the same except for the below:

• GST pro forma invoice contains GST registration number while the former contains VAT/ CST/ Sales Tax registration number 
• In addition, the GST pro forma invoice contains additional information regarding HSN codes of goods, SAC codes of services
• GST Classification into SGST, CGST and IGST based on whether the supply is an intrastate or interstate supply

Differences between invoice, pro-forma invoice, estimates and purchase order

Particulars	Invoice	Pro forma invoice	Quotation/Estimates	Purchase order
Meaning	Invoice refers to a commercial document issued by the supplier to the buyer containing the details of goods or services supplied to him & notify the buyer that payment is due.	A pro forma invoice is a document that provides information regarding the particulars of the goods or services yet to be delivered to the buyer/customer.	A formal estimate shows the goods or services needed and the total amount owed to the products or services.	A purchase order is a document issued by the buyer and sent off to the supplier detailing the list of the goods or services to make a purchase.
Objective	To notify the buyer that payment is due.	To help the buyer in taking decisions, regarding whether to place an order or not.	To provide estimated sale price of goods yet to be delivered.	To order goods and/or services from the supplier.
Time of issue	Before payment is received by the supplier.	Before goods and/or services are delivered to the buyer.	On buyer’s request before goods and/or services are delivered to the buyer.	After the receipt of quotation / pro forma invoice from the supplier.
Raised By	Supplier	Supplier	Supplier	Buyer
Issued to	Buyer/ Customer	Buyer/ Customer	Buyer/ Customer	Supplier
Effect of Acceptance	Confirmation of sale	Creation of sale	Creation of sale	Contract of Sale
Negotiability	Non-negotiable	Negotiable	Negotiable	Not applicable

Frequently Asked Questions

Is a pro forma invoice a real invoice?

No, a pro forma invoice is not an actual invoice. It just contains the particulars of the goods or services yet to be delivered to the buyer/customer.

Can a customer negotiate on the details specified in the pro forma invoice?

Yes, a pro forma invoice is a negotiable document. A customer can negotiate on various details like price, shipping costs, delivery time etc. It can be amended even after both parties sign it.

What are the reasons to amend the details of the pro forma invoice?

There could be several reasons to change the details of the pro forma invoice. Some of them are as follows:

• Buyer may find the prices too high and may demand a discount.
• The buyer may change the quantity of the order based on local demand.
• The buyer may demand a closer shipment date in certain circumstances as the delivery date specified by the supplier is unacceptable.
• Change in mode of transport in case of an urgent delivery request by the buyer. For example, one can change the mode of transport from seaways to airways.

What is the methodology to revise pro forma invoices?

The seller can raise the price or other terms of the earlier issued pro forma invoice. Hence, to keep on track, the invoice number of a pro forma invoice should be revised whenever there is a change in the contents of a pro forma invoice.

Can a proforma invoice be accounted for in the books of account?

A pro forma invoice is not a true invoice. Therefore, no entry is made in the books of accounts for the financial transaction.

Is the pro forma invoice binding upon the parties in a supply transaction?

A pro forma invoice is not an original/tax invoice. Therefore, it does not have any legal validity. Hence it does not legally bind either party in a supply transaction.

What is the validity period of a pro forma invoice?

The validity of a pro forma invoice varies from business to business, industry to industry. The validity is as mentioned on the pro forma invoice.

Which are the principal industries where pro forma invoice is used?

Businesses in all industries often use pro forma invoices to complete their internal purchasing approval process. These include manufacturing, import/export, trading, wholesalers, dealers etc.