Tax Invoice vs Bill of Supply under GST – Key Differences Explained

If you run a business in India, you've probably heard of "Tax Invoice" and "Bill of Supply." Many business owners get confused between the two. But don’t worry, it’s simpler than it sounds! Using the right document is important for GST compliance, and choosing the wrong one can lead to problems. This blog will explain the difference in a very simple way, so you can always get it right.

What Is a Tax Invoice?

A Tax Invoice is a bill you give to your customer when you sell them something and charge GST on it. If you are a regular GST-registered business, you must issue a tax invoice for the goods or services you sell.

Think of it this way: a tax invoice shows the price of the item PLUS the GST amount. This is the document your buyer uses to claim Input Tax Credit (ITC).

For example, if you run a retail shop, a wholesale business, or provide services like consulting, you will issue a tax invoice. To be compliant, it must follow the official GST-compliant tax invoice format in India.

What Is a Bill of Supply?

A Bill of Supply is a simple bill you issue when you are NOT allowed to charge GST on your sales. You cannot show any tax on this bill.

You would issue a Bill of Supply in two main situations:

• You are registered under the GST Composition Scheme.
• You are selling goods or services that are fully exempt from GST (like fresh milk, bread, or certain services).

Since no GST is collected, the buyer cannot claim any Input Tax Credit from a Bill of Supply.

Tax Invoice vs Bill of Supply – Simple Comparison

When Should You Use Which One?

It’s simple:

• If you are selling taxable goods/services and are a regular GST dealer, always use a Tax Invoice.
• If you are a composition dealer OR if you sell only GST-exempt items, always use a Bill of Supply.

Warning: Using the wrong document is a compliance mistake. For example, if you issue a Bill of Supply but charge GST, it can lead to GST notices and penalties.

Common Mistakes Businesses Make

• Charging Tax on a Bill of Supply: This is incorrect. A Bill of Supply should never have a tax amount.
• Forgetting GSTIN: A valid tax invoice must have your GSTIN clearly mentioned.
• Using the Wrong Invoice Type: A composition dealer issuing a tax invoice is a common error.
• Manual Calculation Errors: Mistakes in calculating CGST and SGST can cause problems during GST filing.

How Billing Software Helps Avoid These Mistakes

Doing this manually can be confusing. The easiest way to avoid these errors is by using modern billing software. A good system knows when to create a Tax Invoice and when to create a Bill of Supply. It calculates taxes automatically and ensures all your bills are 100% compliant.

If you want to make your billing simple and error-free, consider using a GST billing software for small businesses. It saves time and gives you peace of mind.