tax invoice

Chapter 18

How to Create a Tax Invoice

Author: Bhaval Patel

Step by Step Guide On How to Create a Tax Invoice

To create a tax invoice, the vendor must have a purchase record with the right details of the purchase,  including the product or service type, right quantity, the price agreed upon by both him and the buyer, as well as the tax amount for every item.

To charge the tax incurred from the purchase of their products and services, the customer must get a tax invoice from the vendor. The tax invoice is evidence that supports tax credit claims.

This aspect of the MixBit guide covers:

  • What Is a Tax Invoice?
  • What Is The Purpose of a Tax Invoice?
  • What Must be Included in a Tax Invoice?
  • How to Create a Tax Invoice?
  • What Is a Recipient Created Tax Invoice?
  • The Use of Tax Invoice
  • What Is The Difference Between a Tax Invoice and an Invoice?
  • Is Tax Invoice a Bill?

What is a Tax Invoice?

Tax Invoice is evidence of tax charges for goods and services. It is a list of charges for goods sold and services offered with indirect tax charge for every product and service.

What is a Tax Invoice

The tax invoice should include the right description for products and services rendered in their quantities, price of the products and services, the date they were supplied, and mode of transportation. It must also include the total amount of the products or services and the applicable tax of supplies.

What Is The Purpose of a Tax Invoice?

Whenever a seller makes a sale, he/she needs to bill a customer, but whether they do this with a standard invoice or tax invoices it completely depends on whether a seller has registered for GST. 

If a seller is registered for GST, he/she needs to send invoices including taxes for every taxable sale. It is advisable to send a summary invoice within 28 days of sale to avail of all the tax benefits. 

If a seller is not GST registered, he/she shouldn’t charge GST and the invoices he/she sends to the customers. There is no need to include any kind of details about tax including GST in an invoice. Instead, a seller can just send a standard invoice document without any tax to the registered customers. So that they can input tax credit (Nil – if not applicable) for their tax purpose. 

Now there are some instances where a customer asks for an invoice including tax charged, even if you have not registered for GST. In this case, you should send an invoice that shows that no GST is due for the product purchased. Another way to include this in an invoice is that just simply write ‘Price included does not include GST’ or ‘GST due as zero’ at the end of the invoice.

What Must be Included in a Tax Invoice?

What Must be Included in a Tax Invoice

A tax invoice must contain the following necessary details:

  • Date of invoice
  • Vendor’s name, address, and contact information
  • Invoice number
  • The word “Tax invoice.”
  • Customers’ contact details
  • Shipping address
  • Description of good and services in quantities and price
  • Applicable tax charged for each product and service
  • The total amount including tax
  • Vendor’s signature

How to Create a Tax Invoice?

Creating a  Tax invoice with the Word program requires the following steps:

  • Open the Word program and choose a new document. The page will appear blank, type “Tax Invoice” as the header.
  • Type your business Information on the right-hand side of the header. Your business information must include your business name, logo and address, phone number, email, and your business logo.
  • Adjacent your business details, type your customer name, and contact information as sellers identity.
  • Add the date you’re preparing the invoices and the invoice number and identification number or registration number. Also, add the payment due date and quantity purchased.
  • Type every description of the items and services in their right quantities and prices for the sales.
  • Add up the price and quantity to get the total amount. Don’t forget to input tax charges and shipment fees in the total amount. The total amount should be boldly typed.
  • Add payment terms and accepted payment methods.

What is a Recipient-Created Tax Invoice?

A recipient-created tax invoice is created by the buyer of the goods and services. The only situation where the buyer issues a recipient tax invoice is when there’s an agreement between both the buyer and seller, and the agreement is current.

It is often created like a tax invoice; the only variation is the clear statement on the invoices that reads “recipient created tax invoice.”

The buyer of the goods and service must input tax in the invoices within 28 days of sale for accounting purposes. The original copy must also be kept for reference purposes.

The Use of Tax Invoice

The tax invoices are used for taking advantage of the tax credit. They are transparent proof for transactions of taxable sale in a state tax system. Tax invoices are remitted to the appropriate authorities at the end of a fiscal year for accounting purposes, and to provide financial relief.

Tax invoices are useful for preventing tax evasion.

Tax invoices are only useful when issued on time when the vendor supplies goods and services to the buyer and sends them invoices. The tax invoices are often issued by the buyer within 30 days of receiving the services and goods. For banks and other financial institutions, a tax invoice is issued within 45 days of the sale even if you are using invoicing software like MixBit. Such software helps businesses in creating easy to use invoices that are professional and justify the branding needs.

What Is The Difference Between a Tax Invoice and an Invoice?

The main difference between a tax invoice and a standard invoice is that the tax invoice includes all the details about Goods and Services Tax (GST), whereas a regular standard invoice doesn’t include any detail about the taxes. Both types of invoices are ideal for creating financial reports and annual accounts, while tax invoices are especially needed to claim tax credits. 

Generally, companies send invoices to customers to let them know how much they need to pay for the products or services they have opted for. An invoice with tax serves an additional purpose that helps a dealer, buyer, seller, and tax authorities in understanding and processing the tax due on the specific sales. 

Apart from that, the main variation between an invoice with tax and a standard invoice is that the tax invoice includes all the information about Goods and Service Tax (GST), along with the company product, whereas a standard invoice doesn’t have such information. 

Whether you send a regular invoice or a tax invoice, you should keep complete records of your sales documents of the payment. To claim tax credits, it is essential that you meet all the record-keeping guidelines and requirements, no matter which type of invoices you send to the customers to request a payment. You should always have the essential details with you for your good to input tax credits.

Is Tax Invoice a Bill?

Sellers issue invoices on time for the product or service they have provided along with the applicable taxes. If a seller is transporting goods, they need to issue an invoice when the goods reach the client along with the tax applicable. That is called a tax invoice template, which is different from the general bill for the payment request. The general bill helps customers in knowing the products purchased and the prices. 

Whereas an invoice including tax includes all the taxes included. You just need to understand your business requirements and your customer’s requirement. According to your needs and as per your understanding with your client you need to generate the invoice.

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