Invoices form an integral part of running any business or profession, whether big or small. Several types of invoice documents are used based on the industry, stage and nature of business transactions, and GST law. Invoices help in maintaining records, payment tracking and business analytics. Hence, it is crucial to adopt and use the correct type of invoice for a particular transaction to avoid wasting time, money and efforts of the parties involved in the transaction.
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Let’s look at the various types of invoices and documents commonly used by businesses for day-to-day transactions in India.
Invoicing or billing can be done based on the stages in a transaction. For instance, a proforma invoice or estimate is issued by the supplier or seller at the initial stage when the buyer places an order. Likewise, the final invoice is raised when the seller completes the transaction, or the actual sale of the product happens at the final stage.
An interim invoice or progress invoice may also be raised between these two stages if the transaction is a large project with multiple performance stages with payment promises, such as construction projects.
A past due invoice can be issued when the credit period allowed in the final invoice expires, and the seller reproduces the earlier invoice details with a late fee or interest for delay in payment. Ongoing services or continuous services may require the seller to issue recurring invoices in cases such as a concurrent audit at banks.
Credit notes and debit notes help rectify any monetary mistake or account for sales and purchase returns or after sales discounts after raising the final invoice.
There are documents more frequently used, such as delivery notes, goods receipt notes, expense reports, etc., that enhance the ease of doing business. These documents help other departments of the organisation maintain records for the inflow and outflow of goods.
Few invoices and documents are prescribed under the GST and indirect tax laws in India. Under GST, a registered business must issue a GST-compliant invoice. The invoice should satisfy the invoicing rules and have contents as prescribed by the law.
Similarly, e-invoices must be issued by a specific category of GST registered businesses. There are invoicing documents such as e-way bills, ISD invoices, receipt and payment vouchers, refund invoices or vouchers widely used by such businesses.
A standard invoice is also known as the final invoice. It is used by a business or professional, mostly not registered under any indirect tax laws. It is a common form of invoice used by small businesses where the format is flexible as per the business needs and industry standards.
A standard invoice includes information about the name and contact details of the seller and buyer, invoice number, invoice date, description of the products or services sold, rate and amount charged for each product or service, and the total amount due.
A tax invoice refers to an invoice raised by sellers registered under GST, the erstwhile VAT, Service Tax, etc. The invoice is issued for all the taxable sales or supplies made by a supplier.
A GST-compliant invoice acts as proof to allow the GST-registered buyers to claim the input tax credit. Also, any failure to issue a tax invoice within the time prescribed under the GST law can attract huge penalties for businesses.
A GST invoice contains specific information about the transaction such as invoice date, invoice number, seller’s address and GSTIN, buyer’s address and GSTIN (if applicable), description, quantity, and HSN code of products sold. Most importantly, it contains the taxable value and the corresponding tax rate and amount for every product sold.
It acts as a legal document as well. A tax invoice is required to be signed or e-signed by the authorised signatory of the organisation, without which it is not valid for use by the buyer.
e-Invoice or electronic invoice refers to a GST-compliant invoice verified by the GST Network (GSTN). e-Invoicing is an initiative by the government and tax department to curb the rising menace of fake invoicing practices in India, introduced from 1st October 2020. It applies to regular taxpayers under the GST law having annual turnover above a notified threshold.
The GSTN checks for any duplication, apart from validating and authenticating such invoices by assigning a unique Invoice Reference Number (IRN) and signed QR code via the Invoice Registration Portal (IRP). It is an electronically validated invoice involving the government’s authentication.
Therefore, it is a very vital and authentic document for taxation purposes. Any failure by the notified businesses in raising the e-invoice attracts the same penalty as a GST invoice.
A proforma invoice refers to the initial or provisional invoice provided by the seller to the buyer containing precise estimates of the products or services that the supplier is expected to deliver. It affirms the seller’s commitment to supply goods and services to the buyer for a fixed price agreed upon by both parties.
It is also known as an estimate or quotation. This invoice is issued before the sale can take place. On receiving the proforma invoice from the seller, the buyer will send a purchase order or open a letter of credit to the seller.
It includes a description of the goods, the estimated total amount payable and other details about the transaction.
A business raises a commercial invoice for globally sold goods via exports to the importers. Such invoices are needed to determine customs duties for cross-border sales and therefore acts as a customs declaration.
A commercial invoice includes the shipment quantity, weight/volume of the consignment, description of the goods, packaging format and total value.
A timesheet invoice comes to use when hourly billing is involved or time becomes the essence of work or transaction. It is beneficial for professionals and contract workers or employees such as advocates, creative agencies, psychologists, business consultants, etc. It is also commonly used for renting out vehicles, costumes, tents, etc.
Instead of mentioning the product, these invoices mention the time taken or spent on service or the deliverable promised and the standard pay rate.
Also known as a debit invoice or debit memo, the debit notes signifies an upward revision in the value of a final invoice or standard invoice or tax invoice. It leads to an increase in the amount owed by the customer to the business. For instance, a seller issues an invoice for sale worth Rs.10,000. However, he notices that he has by mistake raised the invoice for Rs.1,000 instead of Rs.10,000. The mistake can be rectified by issuing a debit note for the remaining Rs.9,000. Such memos or notes always mention a positive figure and are most likely issued to correct errors by sellers. On the other hand, buyers may issue them if they want to return damaged or defective goods or purchase returns.
The debit note serves as evidence of adjustment of GST or if any dispute comes up in the future.
Also referred to as a credit invoice or credit memo, the credit note depicts a downward revision in the value of a final invoice or standard invoice or tax invoice. It leads to a decrease in the amount owed by the customer to the business due to sales returns which could be due to damaged goods or any other reason, or due to after-sales discounts.
These invoices act as proof of adjustment of figures mentioned in the final invoice previously issued and come in handy at the time of disputes, if any, in the future.
A bill of supply refers to a document for all the non-taxable or exempt transactions under the GST law. The taxable composition persons also issue it. It is different from a standard tax invoice due to not containing tax figures.
In either of these cases, the GST-registered person cannot charge and collect GST from the buyer, and therefore no tax amount is listed on the bill.
The GST law prescribes a receipt voucher. It is issued by those sellers registered under this law who receive any advances against the supplies made. It is also known by the name of retainer invoice.
As per the GST law, a supplier of services must compute the GST chargeable on the advance received and deposit it with the government. This voucher acts as proof that payment has been received.
In case of reverse charge mechanism applicable on a transaction under the GST law, the recipient of goods or services becomes liable to pay the tax instead of the supplier or vendor. The supplier of such goods/services cannot raise a tax invoice.
In such cases, the buyer, registered under GST, has to issue a payment voucher for that transaction on which reverse charge applies. The payment voucher is issued at the time of making the payment.
The refund voucher refers to the document issued by the supplier to a person from whom he had received an advance where later, the contract or transaction got cancelled. The GST law prescribes it along with other documents such as the payment voucher and receipt voucher.
It is issued to refund the advance amount received and acts as proof of such refund as there will be no tax invoice raised in these cases.
Under the GST law, an input service distributor can distribute the input tax credit on input services he avails among his business units and branches. At such times, the input service distributor, also popularly known as ISD, raises ISD invoices on each unit with details of the purchase transaction and the amount of ITC allotted to the particular unit.
A delivery note or delivery challan refers to a document issued whenever the shipment of goods is delivered to a customer or buyer. It confirms that the goods have been delivered to the buyer’s place and gives out the list and quantity of goods delivered.
If any goods are damaged, the person delivering the shipment should note it down on the delivery note on behalf of the customer. Later, a credit note is issued by the seller. Usually, under the GST law, three copies of the delivery note are raised by the seller, one for his records, one for the transporter and the other for the customer. Whereas, commonly, only two are raised, one for the records and the other for the customer.
It is also popularly known by names such as goods receipt notes or dispatch notes. There are specific rules defined under the GST law regarding the issue of delivery notes and their implications.
As per the GST law, transporters must carry an e-way bill when moving goods from one place to another upon satisfying certain conditions. An e-way bill refers to the electronic waybill generated by specified GST-registered sellers, any transporter or buyer, whether or not registered under GST, on the government’s e-way bill portal.
A registered person cannot transport goods in a conveyance where the value of the consignment is more than Rs.50,000 (either on a single invoice/delivery challan) without a valid e-way bill. When an e-way bill gets generated, a unique E-way Bill Number (EBN) is allocated and accessible by the supplier, recipient, and transporter.