All about Proforma Invoice under GST

All about Proforma Invoice under GST


Many types of different documents are issued when a sale of goods and services takes place. Issuance of the tax invoice is compulsory for an individual who is supplying goods or services as per section 31 of the Central Goods and Services Tax Act of 2017. The concept of a Proforma invoice is not new to the system. The concept was in existence before the GST system was implemented. There were a few changes made in the Proforma invoice after the implementation of GST. The Proforma invoice contains particulars about SAC codes and HSN codes; both these codes are used for services and goods. The tax rates are classified on the basis of CGST, IGST, and SGST; the Proforma invoice also gives information about the same.

What is Proforma Invoice?

A document that consists of the particulars of the goods and services which are not delivered is referred to as a Proforma invoice. This document is similar to an invoice but is not an invoice. Proforma is a Latin term which means “for the sake of form”. A Proforma invoice acts as a formal statement which consists of the price of the goods and services; these prices can be estimated price which can be renegotiated, or revoked. The Proforma invoice is an initial invoice which takes place before the delivery of goods or services. The Proforma invoice is issued to a buyer or customer who is enquiring about the goods or services by the seller.

What does Proforma Invoice contain?

  • A Unique Invoice Number (UIN)
  • Seller’s Address
  • Buyer’s (Potential) Address
  • The date on which the invoice is issued
  • GSTIN of both seller and potential buyer
  • Proforma Invoice validity period
  • Conditions and terms for the payment
  • Goods and services description
  • Authorized person’s sign
  • Certificates if customs authorities, if necessary
  • Supplier bank details
  • Details about deduction in taxes, discounts, taxes, if any
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Changes in Proforma Invoice after GST

The concept of a Proforma invoice is not described anywhere in GST law. There is no mention of a Proforma invoice in the law relating to the Goods and services act. A proforma is not a legal document, as it is not an actual invoice. There is no mention of any term like a proforma invoice in GST rules and regulations. CST/VAT/Sales Tax registration numbers were earlier mentioned in the proforma invoice; after the implementation of GST, it is mandatory to mention the GST number. The HSN and SAG codes are now included in the proforma invoice.

Use of Proforma Invoice

When a customer asks for a proforma invoice in order to get an idea about the estimated price and the description of the goods that are to be dispatched, the supplier issues a proforma invoice for the same. This type of invoice is often used during export transactions. The proforma invoice can act as a draft of the final invoice or a copy of a sales invoice. A clear idea of the terms and conditions of the sale transaction can be provided by the proforma invoice. When the sale is going to take place between two parties residing in different countries, this type of invoice can be sent to the buyer aboard before the sale. Sometimes this invoice is also used to release the goods at the port.

Difference between Invoice and ProformaInvoice

  Invoice  Proforma Invoice  
The invoice is a legal document.The proforma invoice is a formal document.
This invoice is issued after the actual sale has taken place.The proforma invoice is issued before the actual sale.
The price of goods or services in the invoice is final.The price in the proforma invoice can be negotiated and modified.
This invoice confirms that the sale has taken place and the payment is remaining.The proforma invoice is an initial document which depicts that the sale has not occurred yet.
The invoice informs the buyer about the amount due on the sale transaction.The proforma invoice included all the information about the goods or services along with the estimated price.
All the information mentioned in the invoice relating to the buyer, seller, the company and the sale of goods and services, along with their quantity and description.In the proforma invoice also, all the similar information is included, but the words “Proforma Invoice” is mentioned in big letters on the top of the document.
Invoices can be used for accounting purposes or to maintain records of transactions.Proforma Invoice is not used for accounting purposes.

Merits of Proforma Invoice

Merits of Proforma Invoice
  • Description of Goods: Proforma invoice gives clarity and a description of the goods or services before the transaction has taken place. A clear understanding of the price of goods or services, the quantity of goods and various other information can be known.
  • Payment information: The Proforma invoice consists of information about the mode of payment too. This information can help the buyer to prepare for the payment of goods or services in advance.
  • Gives buyer a clear idea:  The Proforma invoice gives the potential buyer of the goods or services an idea about the goods or services, and the buyer can decide in advance whether he wants to buy the goods or services or not. This advanced knowledge can save time for both the buyer and the supplier.
  • Negotiation and Modification Tool: The flexibility of negotiating or modifying the price of the goods and services is provided by the Proforma invoice, as this invoice is not an actual invoice but a formal document.
  • Not Mandatory: There is no compulsory rule to generate a Proforma invoice. This practice takes place as a precautionary action by the business owners in good faith.
  • Import and Export: The Proforma invoice helps in the export and import of the goods as it acts like a formal document that consists of all the information about the goods and their price and is also signed by an authorized person. This invoice can act like a letter of credit.
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In conclusion, a proforma invoice is a very useful instrument which is used in business transactions, as it gives information about the goods and services that are going to be sold before they are delivered. This invoice helps the transactions to run smoothly and gives space for negotiation as well.

Frequently Asked Questions

  1. What is a Proforma invoice under GST?

    There is no actual mention of a proforma invoice in the GST regime. A document that consists of the particulars of the goods and services which are not delivered is referred to as a Proforma invoice.

  2. Is proforma a commercial invoice?

    A Proforma invoice is not a commercial invoice. It just resembles a commercial invoice.

  3. Is a Proforma invoice a proper invoice?

    No, a proforma invoice is not a proper invoice. A proper invoice is issued after the delivery of goods and completion of the sale transaction.

  4. Is the GST number mandatory in the Proforma invoice?

    Yes, the proforma invoice should have a GST number on it.

  5. What is pro forma v/s regular invoice?

    The regular invoice is given only after the sale has taken place, and the goods or services are delivered. The proforma invoice is issued before the actual sale has taken place.

  6. Is a Proforma invoice required?

    It is not compulsory to issue a proforma invoice, but a seller can issue a proforma invoice if asked or for international shipments.

  7. Who will prepare the Proforma invoice?

    The seller is the person who will prepare the proforma invoice.

  8. Is GST mandatory in the Proforma invoice?

    The GST is not mandatory in proforma invoice.

  9. Is Proforma Invoice a legal document in India?

    No, a proforma invoice is not a legal document in India.

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