Imagine you’re finalizing a deal, but the goods or services haven’t been delivered yet. How do you provide a detailed cost breakdown? Enter the proforma invoice—a crucial tool under GST that offers clarity before finalizing the transaction. Let’s uncover what it is, how it works, and why it’s important for your business.
A proforma invoice is a preliminary bill of sale sent from a seller to a buyer before the sale has been finalized. It reflects an estimated list of items or services with prices, quantities, and terms but is not a payment request. It is essentially a quote or a formal offer containing pertinent information for the buyer to evaluate before the deal takes place.
Under GST, while no specific format is legally mandated, consistency in the template is crucial for ease of compliance and documentation.
A proforma invoice outlines estimated costs, taxes, and terms of sale but is not a legal request for payment. Instead, it’s used for customs, budgeting, and providing clarity on terms. Key features include –
Proforma invoices should include the supplier and recipient’s GSTIN (Goods and Services Tax Identification Number). This is critical for meeting the GST framework’s requirements.
The invoice has to mandatorily contain the HSN (Harmonized System of Nomenclature) codes for goods and the SAC (Services Accounting Codes) for services for correct classification. These codes are required for expense classification and correct taxation.
Based on the supply type, the estimated prices of the goods or services provided do not include taxes levied, whether CGST, SGST, or IGST. These estimates provide the buyer with an idea of the cost involved.
A proforma invoice details the terms of sale, such as delivery time frames, modes of payment, and any applicable advance payments or discounts.
It contains the validity period, which is the duration for which quoted prices and terms will be valid. This will help set appropriate expectations between the buyer and seller.
For international transactions, proforma invoices provide the information required for customs clearance, such as the description of the goods, the value of the shipment, and other certifications required by customs authorities for smooth clearance across borders.
A proforma invoice is not a legal payment request. It serves as a preliminary document and is often used to provide transparency about the transaction before the official invoice is issued.
– Under GST, HSN/SAC codes and GSTIN are mandatory, unlike the older VAT/CST system.
– GST proforma invoices explicitly classify the tax type, whether SGST, CGST, or IGST, depending on the nature of the transaction (intrastate or interstate).
A proforma invoice is typically issued before the actual sale takes place, offering a preliminary document for an upcoming transaction. It estimates the goods or services to be delivered and their associated costs, including taxes, shipping, and any other charges. It’s not a payment request but serves several key domestic and international trade purposes.
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A proforma invoice should include the following essential details –
Under GST, a pro forma e-invoice functions as a preliminary document issued by a seller to provide an estimate for goods or services before the actual transaction. It includes details such as product description, quantity, price, and applicable taxes. Though it’s not a tax invoice, it helps facilitate smooth transactions, particularly in international trade for customs clearance and planning. Here’s how it works –
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Below are the key differences between a proforma invoice vs. tax invoice –
In conclusion, a Proforma Invoice under GST is essential for estimating costs before actual transactions, especially for customs and budgeting. It ensures clarity between parties before formalizing the sale. For streamlined GST invoicing, explore our BUSY GST Accounting Software today.