A hospital purchase officer says, "Please send a proforma, we will release the advance." An exporter's buyer abroad asks for one to open a letter of credit. A builder wants it to get his bank loan disbursed for material. If you run a small business in India, sooner or later someone will ask you for a proforma invoice, and many shop owners are not sure what it is, how it is different from a tax invoice, or whether GST has to be paid when they issue it.
This guide clears up the confusion: what a proforma invoice means, what it should contain, a sample format, when to use it, and how GST treats it.
What is a proforma invoice?
A proforma invoice is a preliminary bill sent to a buyer before the actual sale. It looks much like a real invoice, with items, quantities, prices and tax, but it is a commitment to supply on those terms, not a demand for payment that records a completed sale. "Pro forma" is Latin for "as a matter of form".
Buyers use it to get internal approval, arrange funds, pay an advance, apply for a bank loan or import licence, or open a letter of credit. Sellers use it to lock in the deal and ask for advance payment before dispatching goods.
Proforma invoice vs tax invoice
| Point | Proforma invoice | Tax invoice |
|---|---|---|
| Timing | Before the supply, after the buyer agrees in principle | At the time of supply, as per GST rules |
| Status under GST | Not a document prescribed under GST | Prescribed document under Section 31 and Rule 46 |
| Tax liability | Issuing it does not by itself create GST liability | GST is charged and must be paid |
| Input tax credit | Buyer cannot claim ITC on it | Registered buyer can claim ITC, subject to conditions |
| GST returns | Not reported in GSTR-1 | Reported in GSTR-1 |
| Accounting entry | No sales entry in your books | Recorded as a sale |
| Numbering | Separate series (for example PI-001) | Unique consecutive invoice series |
Proforma invoice vs quotation
The two are close cousins. A quotation is an offer sent to win the order, often to several possible buyers. A proforma invoice usually comes later, once the buyer has chosen you, and it reflects the final agreed items, prices and terms. In practice, a buyer's accounts department will often ask for a proforma before paying an advance, even if a quotation was already sent.
Proforma invoice format: what to include
- The heading "Proforma Invoice" in clear letters, so nobody mistakes it for a tax invoice.
- Your business name, address, contact details and GSTIN.
- Proforma number and date, from a series separate from your tax invoices.
- Buyer's name, address and GSTIN (if registered).
- Description of goods or services, HSN/SAC, quantity, unit and rate.
- Discounts, freight or other charges.
- Expected GST (CGST/SGST or IGST) shown separately, with the estimated total.
- Payment terms: advance amount, bank details, due date.
- Delivery time and validity of the proforma.
- A note such as "This is a proforma invoice and not a tax invoice."
- Authorised signature.
Sample proforma invoice
Example: an electronics dealer quoting to a school for computer lab equipment. Prices are illustrative only.
| # | Description | HSN | Qty | Rate (₹) | GST | Amount (₹) |
|---|---|---|---|---|---|---|
| 1 | Desktop computer, i5, 16 GB RAM | 8471 | 10 | 42,000 | 18% | 4,20,000 |
| 2 | Line-interactive UPS 1 kVA | 8504 | 10 | 4,500 | 18% | 45,000 |
| Taxable value | 4,65,000 | |||||
| CGST 9% + SGST 9% | 83,700 | |||||
| Total | 5,48,700 |
Terms: 50% advance by bank transfer; balance on delivery; delivery within 10 days of advance; valid for 15 days. Always verify the GST rate and HSN code for each product, for example on this GST rates page or with your CA.
When should you use a proforma invoice?
- Advance payment orders. When the buyer must pay before you dispatch.
- Institutional buyers. Schools, hospitals, offices and government departments often need one for approval.
- Loans and finance. Banks and finance companies may ask for it before disbursing money for equipment or material.
- Exports and imports. Used by foreign buyers to open letters of credit or apply for permits.
- Custom or made-to-order goods. To confirm specifications and price before you start work.
GST treatment of a proforma invoice
A proforma invoice is not a tax invoice under GST, so issuing one does not by itself create a GST liability, it is not reported in GSTR-1, and the buyer cannot claim input tax credit on it. Once the goods are supplied, you must issue a proper tax invoice within the time allowed by GST law.
The advance payment that often follows a proforma needs care:
- Advance for goods: for most normal taxpayers, GST is generally not payable at the time of receiving an advance for goods; it is paid when the tax invoice is issued.
- Advance for services: GST may become payable when the advance is received, and you may need to issue a receipt voucher and report the advance.
Composition dealers and special cases have their own rules. Confirm the treatment for your business with your CA or on gst.gov.in.
Step-by-step: from proforma to tax invoice
- Agree on items, quantity, price and terms with the buyer.
- Issue the proforma invoice from a separate number series.
- Receive the advance and record it against the buyer's account.
- Prepare and dispatch the goods.
- Issue the GST tax invoice for the actual quantity supplied, adjusting the advance received.
- Collect the balance and follow up on any dues.
How MaterialBill helps once the order is confirmed
The proforma gets you the advance, but the tax invoice, the payment record and the GST return are what really matter for your business. The MaterialBill GST billing software helps with that part:
- Create GST tax invoices with CGST, SGST or IGST calculated automatically, or bills of supply if you are a composition dealer.
- Track receivables, advances and balances party-wise with udhaar khata, and send reminders on WhatsApp or SMS.
- Share invoices by WhatsApp, SMS, email or PDF.
- Download GSTR-1 JSON for the GST portal and give your CA the HSN summary and GST summary.
- Use it on phone, tablet or PC, with cloud backup and offline mode.
See the free billing software page for what is included without paying.
FAQs
Is a proforma invoice valid under GST?
It is a commercial document, not a GST document. It is fine to issue, but it does not replace the tax invoice you must issue at the time of supply.
Can the buyer claim input tax credit on a proforma invoice?
No. ITC can only be claimed on a valid tax invoice or other prescribed GST documents, subject to conditions.
Should I show GST on a proforma invoice?
Yes, it is good practice to show the expected GST separately so the buyer knows the full amount to arrange, but mark the document clearly as a proforma.
Do I report a proforma invoice in GSTR-1?
No. You report the tax invoice once the supply happens. Advances received for services may need separate reporting; ask your CA.
Can I cancel a proforma invoice?
Yes. Since it does not record a sale, you can cancel or revise it if terms change. Keep a note of the cancellation for your records.
Conclusion
A proforma invoice helps you secure advance payments and close bigger orders, but it is not a substitute for a GST tax invoice. Keep it in a separate series, mark it clearly, and issue the proper tax invoice when goods go out. For quick GST invoices and dues tracking, sign up for MaterialBill free or call or WhatsApp +91 98359 42411.
