Ankeshan

Tax Invoice vs Bill of Supply: When to Use Which

Last updated: 27 June 2026

Issue the wrong document and you either deny your buyer input tax credit (ITC) or create a tax liability on a supply that should have been tax-free. A tax invoice applies when a regular registered taxpayer makes a taxable supply at any GST rate above Nil. A bill of supply is mandatory for composition dealers (for every supply) and for any registered person making exempt, Nil-rated, or non-GST supplies.

Key takeaways

  • A tax invoice lets the buyer claim ITC; a bill of supply does not.
  • Composition dealers must issue a bill of supply for all supplies—they cannot collect GST from buyers under any circumstances.
  • Exempt and Nil-rated supplies require a bill of supply even if you are a regular taxpayer.
  • Non-GST goods—petroleum products, alcohol for human consumption—also require a bill of supply.
  • A bill of supply must carry a mandatory declaration; the exact wording differs for composition dealers vs exempt supplies.
  • If you accidentally issue a tax invoice for an exempt supply, the GST amount shown becomes payable—even though the supply is exempt.
  • GST rates post-22 September 2025 are Nil, 5%, 18%, and 40% (the 12% and 28% slabs were abolished).

What is a tax invoice under GST?

A tax invoice is the standard document issued by a regular registered taxpayer for any supply that attracts GST at a rate greater than Nil. It shows the GST amount (CGST + SGST, or IGST for inter-state) as a separate line item, enabling the recipient to claim that amount as ITC.

The mandatory fields are prescribed under Rule 46 of the CGST Rules:

Field Requirement
Supplier's GSTIN, name, and address Mandatory
Tax invoice number (consecutive, per financial year) Mandatory
Date of issue Mandatory
Recipient's GSTIN, name, and address (for B2B) Mandatory
HSN/SAC code Mandatory (based on turnover slab)
Description, quantity, and unit Mandatory
Taxable value and discounts Mandatory
Applicable GST rate and tax amount (CGST/SGST/IGST) Mandatory
Place of supply Mandatory for inter-state
Signature or digital signature Mandatory

A tax invoice must generally be issued within 30 days of supply (60 days for banking and financial services).

Fact box. E-invoicing is mandatory for taxpayers whose aggregate annual turnover exceeded ₹5 crore in any preceding financial year. If you are in scope, your tax invoice must be reported on the IRP and carry a valid IRN and QR code before it is shared with the buyer. Additionally, businesses with turnover of ₹10 crore or more must upload invoices to the IRP within 30 days of the invoice date (rule effective 1 April 2025).

What is a bill of supply under GST?

A bill of supply is the prescribed document under Rule 49 of the CGST Rules. It looks similar to a tax invoice but conspicuously omits any GST amount column—no tax is collected and no ITC flows to the recipient.

Two categories of supplier must issue a bill of supply:

  1. Composition dealers — for every supply they make, regardless of the goods or services involved.
  2. Regular registered taxpayers — only when the specific supply is exempt, Nil-rated, or involves non-GST goods (petroleum products, alcohol for human consumption).

Mandatory declaration text

The bill of supply is not merely a tax invoice with the GST column deleted. It must carry a specific declaration:

  • Composition dealers: "Composition taxable person, not eligible to collect tax on supplies" (as required under the CGST Act).
  • Exempt/Nil-rated supplies issued by a regular taxpayer: The document should reference the applicable exemption notification—for example, "GST not applicable — supply is exempt under Entry [X] of Notification [Y]/2017-Central Tax (Rate)". The exact entry depends on the goods or service; verify the specific notification on the CBIC portal for your supply.

Who is a composition dealer, and what are the limits?

Composition dealers pay a flat tax on turnover and cannot charge GST to customers. Current rates under the composition scheme:

Category Composition Rate
Manufacturers and traders 1% of turnover
Restaurants (not serving alcohol) 5% of turnover
Service providers (other than restaurants) 6% of turnover

The composition scheme is available to taxpayers whose aggregate annual turnover does not exceed:

  • ₹1.5 crore — for most states
  • ₹75 lakh — for special category states (North-East states, Himachal Pradesh, Uttarakhand, J&K)

Fact box. Service providers (other than restaurants) can opt for the composition scheme only up to ₹50 lakh in aggregate turnover. Once a taxpayer crosses the applicable threshold or opts out, all subsequent supplies must be covered by tax invoices and regular GST compliance.

How do I decide which document to issue?

Use this decision tree before generating any invoice:

  1. Are you registered under the composition scheme?

    • Yes → Issue a bill of supply for every supply. Stop here.
    • No → Continue to step 2.

  2. Does this specific supply attract GST at a rate greater than Nil?

    • Yes (5%, 18%, or 40%) → Issue a tax invoice.
    • No (Nil-rated, exempt, or non-GST goods) → Issue a bill of supply.

What happens if I issue the wrong document?

Issuing the wrong document has real financial consequences:

  • Tax invoice for an exempt supply: The GST shown on the invoice becomes payable to the government under Section 9 of the CGST Act—even though the underlying supply is exempt. The error cannot simply be reversed by issuing a corrected bill of supply; you must file GSTR-1 and pay the tax, then seek a refund, which is administratively burdensome.
  • Bill of supply when a tax invoice was required: Your buyer cannot claim ITC. For B2B supplies this is commercially damaging and may cause the buyer to reject the document or demand a corrected tax invoice.
  • Missing mandatory declaration on bill of supply: The document may not be considered valid, and a composition dealer may face scrutiny for appearing to collect tax without authority.

What are the key differences at a glance?

Feature Tax Invoice Bill of Supply
GST charged to buyer Yes No
Buyer can claim ITC Yes No
Governing rule Rule 46, CGST Rules Rule 49, CGST Rules
Issued by Regular registered taxpayer (taxable supply) Composition dealer (all supplies); regular taxpayer (exempt/Nil/non-GST)
GST rate column Present (5%, 18%, or 40%) Absent
Mandatory declaration Not required Required (wording varies)
E-invoicing applicability Yes, if turnover threshold met Generally not applicable

How do I set this up in Excel without making mistakes?

The simplest reliable method is to maintain two separate templates—one for tax invoices and one for bills of supply—rather than toggling columns in a single sheet.

Your bill of supply template should:

  1. Remove the CGST, SGST, IGST, and total tax columns entirely so there is no risk of accidentally entering a tax amount.
  2. Include the mandatory declaration text in a locked cell near the header so it always prints.
  3. Reference the correct exemption notification (if you are a regular taxpayer issuing for exempt supplies) as a fillable field, since the specific notification entry varies by supply.
  4. Retain all other fields that mirror Rule 49 requirements: GSTIN, name, address, document number, date, HSN/SAC, description, quantity, value, and signature.

Ankeshan's free templates implement this separation out of the box.

Frequently asked questions

Can a composition dealer ever issue a tax invoice? No. A composition dealer is legally prohibited from collecting GST from buyers and must issue a bill of supply for every supply. If a composition dealer issues a tax invoice and collects tax, the amount collected is payable to the government and the dealer may face penalties.

Is a bill of supply required if the invoice value is below ₹200 for exempt supplies? A registered person need not issue a bill of supply for supplies below ₹200 in value to an unregistered person, provided the recipient does not require the document. However, it is good practice to issue one for recordkeeping, and the exemption does not apply to B2B supplies.

Do I need separate number series for tax invoices and bills of supply? Yes. Maintain a distinct consecutive numbering series for each document type within a financial year. Mixing series across document types creates reconciliation problems in GSTR-1.

Can I convert a bill of supply to a tax invoice later? No. The correct document must be issued at the time of supply. If you realise you issued the wrong document, consult a GST practitioner. Issuing a tax invoice retrospectively for an already-completed exempt supply does not change the nature of the supply but will create a tax liability on the amount shown.

A buyer is asking me to issue a tax invoice so they can claim ITC on my exempt supply. Can I comply? No. ITC eligibility follows the nature of the supply, not the document format. An exempt supply does not carry ITC regardless of what document you issue. Issuing a tax invoice in this scenario creates a tax liability for you and will not provide legitimate ITC to the buyer.

I am a regular taxpayer who sells both taxable and exempt goods. Do I need both templates? Yes. You will issue tax invoices for taxable supplies and bills of supply for exempt or Nil-rated supplies. Keep separate running number series for each and report them in the correct tables of GSTR-1.

How Ankeshan helps

How Ankeshan helps: Ankeshan includes a pre-formatted Bill of Supply sheet alongside the Tax Invoice sheet — declaration text pre-filled, shared HSN master, CGST/SGST/IGST auto-split — all inside Excel. It's launching soon; join the waitlist.

The free Excel templates (no sign-up) are available here: Free GST Invoice Template →

Sources

  • CGST Rules, 2017 — Rule 46 (Tax Invoice) and Rule 49 (Bill of Supply): cbic-gst.gov.in
  • CGST Act, 2017 — Section 10 (Composition Levy), Section 31 (Tax Invoice, Credit and Debit Notes)
  • Notification No. 01/2018-Central Tax (Rate) and amendments — composition scheme rates
  • GST Council Press Release, 22 September 2025 — abolition of 12% and 28% rate slabs
  • CBIC Circular on e-invoicing applicability thresholds

Disclaimer: This article provides general information about GST invoicing documents and is not professional tax or legal advice. GST law is amended frequently; verify the current position on the official GST portal (gst.gov.in) and CBIC circulars for your specific supply and state. This article has been reviewed by a Chartered Accountant and was last updated 27 June 2026.

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