Tax Invoice vs Bill of Supply: When to Issue Which Document?

In the business world, the term "invoice" is used loosely to describe any bill requesting payment. However, under the Goods and Services Tax (GST) law, the type of document you issue depends entirely on the nature of the transaction and your registration status.

The two most critical billing documents are the Tax Invoice and the Bill of Supply.

Issuing the wrong document causes severe compliance issues: it can block your customer from claiming their legitimate Input Tax Credit (ITC) or illegally trick them into paying tax on exempt items. This guide clarifies the definitive differences between a Tax Invoice and a Bill of Supply for the 2026 Assessment Year.

What is a Tax Invoice?

A Tax Invoice is the primary commercial document issued by a registered taxable person when supplying taxable goods or services (i.e., those subject to 5%, 12%, 18%, or 28% GST).

Core Function: It serves as the legal proof of the taxable supply and indicates the precise amount of CGST, SGST, or IGST levied.

Input Tax Credit (ITC): This is the most crucial aspect. A valid Tax Invoice is the only document that allows the recipient (purchaser) to claim ITC for the tax paid, assuming they are also a registered business. Given its importance, the GST rules strictly dictate the 10 mandatory fields a Tax Invoice must contain, including both parties' GSTINs and accurate HSN/SAC codes.

Legal Reference

Relevant Law: Section 31(1) and 31(2) of the CGST Act mandate the issuance of a Tax Invoice. Section 31(3)(c) introduces the Bill of Supply. Rule 49 details the particulars required for a Bill of Supply.

What is a Bill of Supply?

A Bill of Supply is a commercial document issued in scenarios where GST cannot be legally charged on the invoice.

You must issue a Bill of Supply (instead of a Tax Invoice) in two specific situations:

1. Supplying Exempted Goods or Services: If you are a registered dealer supplying goods or services that are currently wholly exempt or nil-rated (e.g., fresh vegetables, unbranded milk, healthcare services), you do not add GST to the price. Therefore, you issue a Bill of Supply.
2. Operating under the Composition Scheme: Small taxpayers who opt for the GST Composition Scheme pay a flat, nominal tax rate (1%, 5%, or 6%) out of their own pockets based on their turnover. They are forbidden from collecting this tax from their customers. Because they cannot charge tax on the invoice, they must issue a Bill of Supply.

Core Function: It is simply proof of sale or service provision.

Input Tax Credit (ITC): Because no tax is shown on a Bill of Supply, the recipient cannot claim any Input Tax Credit. Furthermore, Composition dealers issuing Bills of Supply cannot claim ITC on their own purchases.

Key Differences Summary

The Special Case: Invoice-cum-Bill of Supply

What happens if a regular registered dealer sells both taxable items (e.g., branded paneer at 5%) and exempt items (e.g., fresh milk) to the same customer on the same day?

Do they need to issue two separate documents?

No. To ease compliance, Notification No. 45/2017–Central Tax allows the dealer to issue a single combined document called an "Invoice-cum-Bill of Supply." This document itemizes the taxable and non-taxable products separately, calculating GST only on the taxable lines.

Less Than ₹200 Relaxation

Whether you are supposed to issue a Tax Invoice or a Bill of Supply, the law provides a small relaxation to reduce paperwork volume for retail stores (B2C transactions).

If the value of the supply is less than ₹200, you are not strictly required to issue a document for every single supply, provided:

1. The recipient is not registered under GST.
2. The recipient does not demand a printed document.

Instead, the seller must issue one consolidated Tax Invoice or Bill of Supply at the close of every day covering all these minor transactions.

Common Mistakes Beginners Make

1. Composition Dealers Using "Tax Invoice" Software Templates: Many small retailers opting for the Composition Scheme buy generic billing software that prints "Tax Invoice" at the top by default. This is a severe violation of Section 31. Composition dealers must reconfigure their software to print "Bill of Supply" and include the mandatory declaration footnote.
2. Charging GST on Exempt Transportation: A trader issues a Tax Invoice for the delivery of fresh (exempt) agricultural produce and charges 18% GST on the transport portion within the same invoice. The transport of agricultural produce is generally an exempt service; billing it incorrectly as taxable on a Tax invoice complicates return filing.
3. B2B Customers Accepting Bills of Supply: If your supplier hands you a Bill of Supply for a laptop (a taxable good), immediately reject it. They are likely trying to evade tax or are a Composition Dealer. Either way, accepting it permanently blocks your ability to claim the 18% ITC you deserve on that business asset.

Conclusion

The distinction between a Tax Invoice and a Bill of Supply hinges firmly on taxability and the right to collect tax from the consumer. A Tax Invoice activates the Input Tax Credit chain, while a Bill of Supply acknowledges a transaction where tax collection is explicitly barred. Understanding when to deploy each document ensures your business remains compliant and your B2B customers remain happy.