written by Khatabook | September 29, 2021

What Is Pro Forma Invoice Under GST - Meaning, Template & Use

Pro forma Invoice’ is a document similar to the invoice. It contains particulars of the goods or services yet to be delivered to the buyer. In Latin, the term ‘Pro forma’ means ‘for the sake of form’ or ‘as a matter of form’. 

While trading, invoices play a huge role in confirming a transaction and are proof of a binding contract between the buyer and a seller wherein the seller is bound to deliver the goods or services. On the other hand, the buyer is bound to make the payment as per the terms and conditions mentioned on the said invoice. However, not all such documents can be claimed to be an invoice. There are multiple documents issued from buyer to seller and vice versa during the process of any transaction. Right from the enquiry up to the conclusion of the transaction, there is an exchange of documents, each having its name and purpose.

Some of the documents are Tax Invoice, Pro forma Invoice, Quotation, Purchase Order, Estimates, etc.

What is a Pro Forma Invoice?

A Pro forma invoice means a document that looks exactly similar to the Tax or Sales Invoice, except that the term ‘Pro Forma Invoice’ is mentioned on the document at the top in bold. This term in itself differentiates the document from the regular Sales invoice.

A Pro Forma Invoice is prepared by the seller and issued to the buyer before delivering the goods or services. This is not a final invoice and is not binding on either of the parties as it does not bear any legal validity. Neither of the parties can sue the other based on the particulars mentioned in the Pro Forma Invoice. It contains all particulars of the goods and services intended to deliver and consists of the estimated rates. This document is issued to the buyer to get an idea about the rate estimations and take an informed decision. It is issued before the tax or sales invoice, and the amount mentioned therein is expected to be more or less equal to the amount of the transaction.­

A Pro Forma invoice is used in almost all business sectors but is mostly used in imports and exports to enable the smooth flow of goods through the customs frontiers.

When is a Pro-Forma Invoice used?

It fulfils the following purposes:

  • It acts as a draft Invoice or a replica of the Sales Invoice in all aspects.
  • Provides a clarification of the terms and conditions of the future transaction.
  • Provides for estimated values of the transaction.
  • Affirms that the supplier is committed to providing the goods or services at the respective rates mentioned on the said document.
  • To provide the details relating to shipping and other charges.
  • Enables calculation of taxes and Customs duties.
  • Provides Contact details for future communication between the parties.
  • Provides evaluation of the intricacies of cross-border transactions like the exchange rates, currency, interest, and credit options available.

What are the contents of the Pro Forma Invoice?

The contents of a Pro forma Invoice are similar to that of the invoice except for its title. Following are the details mentioned on a Proforma invoice:

  1. Unique Invoice Number
  2. Date of issue
  3. Address of Supplier
  4. Address of the potential buyer
  5. Description of the goods to be supplied, their names, quantities, value, taxes, and rates.
  6. Validity of Proforma invoice
  7. Terms and conditions of the sale to be proposed.
  8. Terms of payment.
  9. Bank Details of the Supplier.
  10. Certification required by the Customs authorities, if any.
  11. Signature of the authorised person of the supplier.

There is no such specific term as Pro forma Invoice under GST. It has no validity in the eyes of the law. Hence, it is just a matter of business practice that the document is issued. 

However, there is not much difference in pre-GST and post-GST Proforma invoice except for a few of the points below:

  • A GST Pro forma Invoice requires the unique GST Number of both the seller and the prospective buyer to be mentioned on it. Earlier, in place of these, there used to be the Value Added Tax (VAT), Central Sales tax (CST), or Service Tax Registration numbers mentioned.
  • Also, under the description of line items of goods and services, the Harmonized System of Nomenclature (HSN) and Servicing Accounting Code (SAC) are to be mentioned for each line item separately.
  • The GST rates along with the Tax amounts for Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST) are to be mentioned alongside each item, indicating whether it is an interstate or intrastate sale.

Also Read: List Of Goods Exempted Under GST in India with HSN Code

Proforma invoice format for GST

How does Pro Forma Invoice differ from Sales Invoice? 

A sales invoice is a legally binding commercial document issued by the supplier to the customer to indicate that a transaction has occurred. The Sales Invoice binds both parties. The supplier is bound to issue the goods or provide the said services, and the customer is bound to make payment as per the terms agreed upon. Most of the time, the supplier accepts advance payments based on the Proforma invoice. In such cases, the balance amount has to be paid by the customer on receipt of the Sales Invoice or a later date as agreed upon on terms of payment. It contains the details of the goods and services delivered and the amount due by the buyer. It is a non-negotiable document and renders confirmation of sale.

On the other hand , a pro forma invoice is a negotiable document having no legal status. It can be negotiated upon by the parties for ‘n’ number of times, on the agreement of both the parties, before issuing the Final Invoice. 

An invoice is issued after the delivery of goods and services; the Proforma invoice is issued  before delivering goods and services. It helps the buyer to decide whether or not to place an order. It is intended to create a sale.

Accounting Perspective:

It is imperative to understand the difference between the two based on accounting perspectives. An Invoice is to be accounted for in the books of accounts by both the parties, the seller as accounts receivable and the buyer as accounts payable. Also, this being a commercial legal document, either of the parties can sue the other for breach of the terms.

However, a pro forma invoice is not to be recorded by the parties in their books. It is just an informative document and does not entail any parties to any legal rights to sue or receive goods and amounts stated therein. Hence, it does not pose any right as to receivables or payables for either of the parties. It also does not warrant any GST deductions or raise any tax liabilities. 

How is the Proforma invoice different from the Purchase Order and Quotations? 

Purchase Order And Proforma Invoice:

The buyer issues a Purchase Order to the seller to confirm the goods mentioned on such a document. It is a step right after the receipt of the Pro forma invoice from the seller. Once the prospective buyer receives the Proforma invoice, if they agree to the terms and prices mentioned in such Proforma invoice, they issue a purchase Order mentioning the exact quantities of goods required by him, thereby indicating the supplier's willingness to enter into a transaction.

Quotation and Proforma Invoice:

A quotation is a document issued by the supplier at the request of the buyer containing the estimates of the prices of goods and services yet to be delivered. Out of multiple quotations received from various suppliers, the buyer decides from whom to purchase. It is t he formal estimate of the total amount owed for the goods and services. While a Pro forma invoice under GST is issued at the final sale stage, a quotation forms the initial stage of enquiry. A Proforma invoice consists of near to exa ct details of the transaction; however, a quotation may contain some other additional details. For Example, extra charges may apply.

Terms and Conditions that are included in a Proforma Invoice:

As the proforma invoice is issued just before the final invoice, it must contain all the terms and conditions of the:

  • Transaction
  • Payment terms
  • After-sale services
  • Guarantee or warranty if any
  • Installation terms
  • Delivery terms
  • Returns terms

This information must be mentioned so that the buyer can make an informed decision.

What is the Validity of the Proforma Invoice?

The Proforma Invoice is valid for the period mentioned on it. It does not have any specified validity mentioned elsewhere.

Pro forma Invoice Template

Following is an example of a Proforma Invoice:

XYZ Traders

Street Address: 37, Mallur Street, Bangalore

Phone Number: 915xxxxxxx

Email: xyz@gmail.com

GSTIN: 06SPMCM8542Z

Fax Number:

Website: www.xyz.in

Bill To:

ABC Traders

Phone:028-524185   

Invoice #: MT/Pinv/005

Address:

98, Badra Road, Bangalore

Fax: 41254221    

Invoice Date: 03/09/2021

 

Email: abc@gmail.com 

   

GSTIN

05ASPCM4125C

       

Item #

Description

Qty

Unit Price (in Rs)

Discount 

Price (in Rs)

12565

Steel Pipes

3

        1,250.00

                  -   

3,750.00

12874

Water Motor

2

6,500.00

 

13,000.00

         

-   

       

Invoice Subtotal

  16,750.00

Bank Details

   

Tax Rate

18.00%

Bank Name: IDBI Bank, Bangalore

 

GST

                    3,015.00

IFSC Code: IBKL0000512

   

Other

 

Account No.

152412012458

   

Deposit Received

 

Make all checks payable to XYZ Traders.

TOTAL

              19,765.00

           

Terms and Conditions:

   

For XYZ

1. Goods, once sold, will not be taken back.

 

(Authorised Signatory)

2. We take no responsibility once the goods leave our premises.

       
     

Also Read: Types of GST in India - What is CGST, SGST and IGST?

Conclusion 

A Proforma invoice is not a sale invoice; it is rather, a pre-sale invoice. It contains all details as per the invoice and is a document intending to create a sale. It does not pose any obligation to pay any amount by the buyer nor any obligation on the supplier to deliver goods. It doesn’t give rise to payment obligations unless the parties agree to pay any advance amount based on the Proforma invoice. In GST, it is customary to issue the GST proforma invoice before entering into a valid transaction since it provides better clarification on the contract terms for both parties. To know more about GST, download Khatabook

FAQs

1. Is the Pro forma invoice a valid proof of transaction?

No, the Pro forma invoice is a pre-sale informative document and does not serve as valid proof of any transaction.

2. Can a Proforma Invoice be revised?

Yes, a Proforma Invoice can be revised any number of times as long as both parties agree upon it.

3. Is Proforma Invoice recorded in the books of accounts?

No. The proforma invoice does not create any receivable or payable hence it is not to be recorded in the books of accounts.

4. Is GST deductible on a Pro forma Invoice?

No. A Proforma invoice does mention the GST details; however, it gives an idea about the applicable taxes, and it cannot be enforced as a valid document to collect or pay GST.

5. What is the format of Pro forma invoice under GST?

A Proforma invoice under GST is a customary document used in business for ease of the same. As per customary business practices, a proforma invoice must be completed in all respects covering every detail of: 

  • goods, 
  • quantity, 
  • rates, 
  • tax details, 
  • terms of sale, 
  • payment terms, 
  • contact details, 
  • GST numbers of both parties, etc. 

presented in an easy to understand manner, with the heading as “Pro forma Invoice’.

6. Is payment to be made against the proforma invoice?

No. A Pro forma invoice does not create any obligation for either of the parties. However, if the parties agree upon advance payment, they can do so before the issue of the invoice.

7. How does a Proforma invoice differ from quotations?

A quotation is issued as a document showing estimated rates for the said goods and services when asked for by the buyer. However, a Pro forma Invoice is issued at the final stage of sale before delivery of goods to communicate the intent of the supplier to sell the goods over details mentioned therein.

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