A pro forma invoice under GST is a document made before the actual sale of goods or services. This document is issued by the retailer or supplier to the customer or buyer who is enquiring for the goods or services. It is issued before the issue of commercial invoice or tax invoice.
Concept of Pro forma Invoice
Some of us may misread the proforma invoice as INVOICE but both are not the same
It is a document that provides information regarding the particulars of the goods and services that are yet to be delivered to the buyer or customer whereas Invoice is issued once the supply of goods or services is made or advance for supply of goods or services is received.
Proforma Invoice is a kind of formal statement which describes the estimated price of goods or services which can be revoked or renegotiated at any time.
The major content in proforma invoice states estimated applicable taxes, shipping costs, commissions, weight of shipment and so on.
Which details are included in Pro-forma Invoice?
In addition to those stated in the previous section like estimated sales quantity, price, costs and commissions etc a proforma invoice must have the following particulars :
Unique invoice number
Invoice date
Seller and buyer details (including GSTIN,if any)
Validity of the pro forma invoice
Proposed terms of sale and payment if any
Subtotal before tax or deductions
Details of discounts if any
Tax and deductions allowed if any
Total amount due from customer
Certifications required by “Customs Authorities” if any.
Signature by an authorized person from supplier company.
Other information that a seller thinks he or she requires to inform to the ultimate buyer can be added.
What is the use of Pro forma invoice?
A pro forma is required when a customer requests to the buyer for giving information regarding the goods or service that is yet to be delivered. It is a preliminary price quotation as well as additional details of a specific product or service before its actual sale. This document is majorly used for the purpose of exports or imports for a smooth delivery.
Some of the major uses and need of Pro forma invoice are as follows:
Export and importFor various clarifications in the trade transactions, pro forma invoices are used. In exports and imports the issues regarding currency, exchange rates, various other details are clearly explained in this document.
Custom duty calculationsWhen goods are crossing borders, this document is useful for computing projected costs of custom duties. It contains details of all factors in a specific trade obligation.
Clarification and contact detailsIt serves as a source of contact between the seller and a buyer. It includes all the details of contract and clarified details. The seller may replicate the final invoice with the help of this document.
Which important points shall be considered regarding Pro forma invoice?
No accounting entry can be done based on Pro forma invoice
This invoice does not warrants deduction of GST
Pro forma invoice does not guarantee sales
It is issued before the final invoice and cannot be substituted as a final invoice
The invoice type shall also have a valid through period mention on it
The amount of the final invoice will be the same or close to the pro forma invoice amount,normally
Customer should not make payments on the basis of this document
No tax liability or claim for credit can be made based on proforma invoice
Format of Pro forma invoice
The format of Pro Forma invoice is not prescribed in any guidelines. It may look like a commercial invoice. The label on the document should be clearly stated as “PRO FORMA”, so that it reflects that it is estimated and not the final tax invoice. A sample format has been created below for ready reference.
Difference between Proforma Invoice, Purchase Order and Invoice
Basis | Proforma Invoice | Purchase Order | Invoice | Estimates |
Concept | It is a document issued by the supplier to the buyer providing information regarding the goods or services that are yet to be delivered. | It is a document that is sent to the supplier by the buyer which has the list of the goods or services that the buyer wants to purchase. | It is a commercial document issued by the supplier to the buyer containing details of the goods or services supplied to him or her and a notification that the payment is due. | It is a formal estimate of required goods or services and the total amount owed for the same. |
Usage | It helps the buyer in taking decision whether to place an order or not. | It is used for placing an order of goods or services from the supplier. | It notifies the buyer that the payment is due. | It provides estimated sale price of the goods or services yet to be delivered. |
Importance | It gives the customer a clear idea of what to expect from an order. | It helps businesses in managing orders, budgets and set business expectations. | It enables business to receive money and updates incoming payments. | It provides detailed information of the offerings to the customers. |
Issued when | It is issued before the delivery of the goods or services to the buyer. | It is issued after the receipt of the pro forma or quotation from the supplier. | It is issued before the payment is received by the supplier | It is issued on request of buyer before the delivery of the goods or services. |
Furnished to | It is issued to buyer or customer | It is issued to Supplier | It is issued to buyer or customer | It is issued to buyer or customer |
Furnished by | It is raised by Supplier | It is raised by buyer or customer | It is raised by supplier | It is raised by supplier |
Flexibility | It is Negotiable | It is not applicable | It is non negotiable | It is negotiable |
Consequence when accepted | It leads to Creation of sale. | It leads to contract of sale. | It leads to Confirmation of sale. | It also leads to Creation of sale. |
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