Whenever a business enters into a transaction, different types of documents are issued under various scenarios. These may include Commercial Invoice, Debit Note, Credit Note, Bill of Supply etc. As per section 31 of CGST Act 2017, it is mandatory for a person supplying goods or services to issue a Tax Invoice to the recipient.
A Tax Invoice is nothing but a commercial instrument that a supplier of goods or services issues to the recipient. This document displays the parties involved in a transaction as well as other details like goods sold or services supplied, quantity of such goods or services, its price and necessary discounts.
Besides, Tax Invoice a business has to deal with various other types of invoices, each of which has a different purpose.
Pro Forma Invoice is one such document that a business has to deal with. This article talks about what is a Pro Forma Invoice, its purpose, the difference between an invoice and a Pro Forma invoice and contents that form part of Pro Forma invoice.[/vc_column_text]
Pro Forma Invoice Meaning
The word Pro Forma means ‘as a matter of form’ or ‘for the sake of form’. Such a term is used to describe a document that is provided to meet minimum requirements or as a formality.
Thus, Pro Forma invoice under GST is a document that a supplier provides to a prospective buyer in return of an enquiry made by such a buyer. It’s a quotation that describes the products, their estimated price, time of shipment, terms of sale as well as terms of payment.
Thus, this document is used while negotiating the terms of sale so that both parties agree on the details and cost of the product to be shipped to the buyer.
Since it is a quotation for goods under question, the buyer is not required to make payment against such an invoice. In other words, such an invoice is not a tax invoice as it does not lead to recording of accounts receivable for seller and accounts payable for buyer.
Thus, Pro Forma GST Invoice is not legally binding. Since it is not a legally binding document, the price of goods to be delivered may change before the final sale is made.
Furthermore, this document is sent to the buyers before issuing the commercial invoice, but the details included in a Pro Forma invoice are almost similar to a commercial invoice.
When is a Pro Forma Invoice Used?
Typically, a Pro Forma invoice is issued before the actual sale takes place. Thus, a supplier is required to issue a Pro Forma invoice in case the customer demands such an invoice in order to know the estimated price and the goods to be dispatched.
But, Proforma invoices are more often used for export transactions. In case of an export transaction, the potential customer sitting abroad sends an enquiry. Such an enquiry is followed by a request for quotation. In response to such a quotation, the supplier prepares a Pro Forma invoice giving estimated price and other details like product description, terms of sale etc.
Furthermore, such an invoice is also used by an importer for obtaining import licenses, opening a letter of credit or making arrangements for funds. Also, Pro Forma invoice is used for shipments that consist of goods not meant for sale or purchase. Example – gifts, samples personal belongings etc.
In addition to this, the supplier needs to provide a Pro Forma invoice to the customs in order to get the goods released at the port of entry.
Purpose of a Pro Forma Invoice
The very purpose behind preparing a Pro Forma invoice is to provide the prospective customer an estimate about price, type of goods as well as other terms of sale in advance. Thus, the prospective customer may decide whether to purchase goods or not on the basis of Proforma Invoice.
Contents of a Pro Forma Invoice
Here are the particulars that form part of Pro Forma Invoice Under GST:
- date of issue of Pro Forma invoice
- address of the supplier along with his GSTIN
- address of the buyer along with his GSTIN
- description of goods or services including their quantity, unit price, HSN/SAC codes, tax rates including CGST, SGST and IGST
- validity period of Pro Forma Invoice
- proposed Pro Forma Invoice terms
- proposed terms of payment
- banking details of the supplier including account number and IFSC code
- authorized signatory of the supplier
Tax Invoice V/s Pro Forma Invoice
|Basis of Comparison||Tax Invoice||Pro Forma Invoice|
|Definition||Tax invoice is a commercial document that a supplier of goods or services issues to the recipient. Such a document contains details like the names of the parties involved, goods or services to be supplied, price, quantity, etc. Tax invoice is used to notify the buyer that the payment is due.||Pro Forma invoice is a document that a supplier provides to a prospective buyer in return of an enquiry made by such a buyer. It’s a quotation that describes the products, their estimated price, time of shipment, terms of sale as well as terms of payment.|
|Purpose||It’s a proof of sale against which payment can be collected by the seller from the buyer. In other words, its a document that legally binds both the buyer and seller to implement the terms of sale agreed against such a document.||Pro Forma invoice is used to provide the prospective customer an estimate about price, type of goods as well as other terms of sale in advance. Thus, the prospective customer may decide whether to purchase goods or not on the basis of Proforma Invoice.|
|Time of Issue||Before supplier receives the payment||Before goods or services are delivered to the buyer|
|Acceptance of Invoice Leads to||Creation of Sale||Confirmation of Sale|
|Negotiability||Terms are negotiable||Terms are non – negotiable|