Invoice vs Proforma vs Quotation — When to Use Each

You send a customer a document with amounts on it. Is it a quotation, a proforma invoice, or a tax invoice? It genuinely matters — each has different legal weight, different GST implications, and getting them mixed up is how businesses end up in scrutiny conversations they didn’t need to be in.

Here’s the short version first, the deep dive below, and a decision tree at the end.

30-second summary

Document	What it is	When to send	GST effect
Quotation	”Here’s what it would cost.”	Before the customer has agreed to buy.	None. Just a price offer.
Proforma invoice	”Here’s what it will cost if you confirm now.”	After the customer has agreed in principle but before you’ve delivered.	None yet. Sets up the deal.
Tax invoice	”Here’s what you owe me — pay up.”	On or before delivery (goods) or within 30 days (services).	Triggers GST liability — your output tax obligation starts.

The single biggest rule: only a tax invoice triggers your GST liability and the buyer’s ability to claim ITC. Quotations and proforma invoices have zero GST consequence.

Quotation — a price offer

A quotation (or “estimate”) is a simple price offer. You’re telling a potential customer what the job or order would cost if they decide to go ahead. Nothing about it is final.

Typical use case: A customer calls asking for rates. You send a quotation listing the items/services with prices, maybe including an estimated delivery timeline.

What to include

• A clear “Quotation” heading
• Quotation number (your own numbering — totally separate from invoice numbers)
• Date of issue
• Validity period (“This quotation is valid for 15 days”)
• Line items: description, quantity, rate, total
• Optional: indicative tax rate (not actual tax — this will be computed properly on the invoice if the deal goes through)
• Your contact details, payment terms you’d offer

What NOT to do

• Don’t call it a “Proforma” or “Tax Invoice” — those are legally loaded words
• Don’t put a GSTIN or apply real tax — it’s not a taxable event yet
• Don’t sequentially number quotations using the same series as invoices — separate them (QT/2026-27/001 vs INV/2026-27/001)

Legal status

A quotation is not a binding contract. The customer can ignore it, haggle, or come back in 3 months. You can change your prices before you issue a proforma or invoice.

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Proforma invoice — a commitment draft

A proforma invoice is what you send after the customer has verbally or informally agreed, but before you’ve actually delivered. It looks almost identical to a real tax invoice — same fields, same layout — but it’s explicitly marked as “Proforma” so it has no GST force.

Typical use case: Customer says “Yes, send me 100 cotton sarees at ₹850 each.” Before you dispatch, you send a proforma invoice so they can:

• Confirm the exact quantities/prices one final time
• Arrange payment (they use the proforma to raise a purchase order internally, or to get bank approval for the payment)
• Block their internal budget

Your actual tax invoice goes out alongside (or just before) dispatch.

What to include

• “Proforma Invoice” clearly in the heading (not “Invoice” or “Tax Invoice”)
• Proforma number — separate numbering series from your tax invoices
• Date of issue + expected delivery date
• Buyer details (including GSTIN if known)
• Line items with HSN/SAC, quantities, rates
• Tax breakup (CGST+SGST or IGST) — same as what the eventual invoice will show
• Terms: “This is a proforma invoice. Payment on this document does not discharge the buyer’s GST obligation. A tax invoice will be issued on dispatch.”

GST impact

Zero. A proforma invoice does not trigger your output tax liability. The buyer cannot claim ITC based on a proforma. Only the subsequent tax invoice does both.

The common mistake

Some businesses issue a proforma invoice, the buyer pays, and then the seller never gets around to issuing the actual tax invoice. This is a real compliance mess:

• The seller hasn’t reported the supply on GSTR-1 (no tax invoice was issued)
• The buyer has a paid proforma but can’t claim ITC on it
• A scrutiny notice eventually surfaces the mismatch

Rule of thumb: every proforma that the customer pays on must be followed by a tax invoice within 30 days (or on dispatch, whichever is earlier).

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Tax invoice — the legal document

This is the one with teeth. A tax invoice:

• Creates your GST liability — you must pay the tax on this to the government
• Enables the buyer to claim ITC — the 18% (or whatever rate) the buyer paid you flows back to them via GSTR-2B
• Appears on GSTR-1 — your monthly outward-supply filing
• Is the primary document the GST department asks for during scrutiny

When you MUST issue a tax invoice

Under Rule 47 of the CGST Rules (time limits for issue):

• Goods: On or before the time of removal / delivery
• Services: Within 30 days of supply (45 days for banking/finance/insurance/telecom)
• Continuous supply of goods (like monthly deliveries): On or before the date of each invoice/payment
• Continuous supply of services (like retainer consulting): At the end of each billing cycle (monthly typically)

Missing these windows is technically a compliance breach — rarely enforced for small gaps (1-2 days) but can become material if you’re systematically late.

What MUST be on a tax invoice

The full list is in our GST invoice format rules post. The short version: your name + GSTIN + address, invoice number + date, buyer name + GSTIN + address, HSN/SAC, quantity + UQC, rate + taxable value, tax breakup (CGST/SGST or IGST), grand total in figures + words, place of supply, signatory.

The exact word matters

Your document’s heading must say “Tax Invoice” (not just “Invoice” or “Bill”). This isn’t bureaucratic pedantry — under Rule 46, composition dealers issue a “Bill of Supply” (different rules) and regular dealers issue “Tax Invoice”. A document that just says “Invoice” is technically non-compliant.

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The decision tree

Customer asked for pricing.
        ↓
Have they confirmed an order?
│
├─ No  → Send a QUOTATION. No GST, non-binding, time-bound offer.
│
└─ Yes →
    │
    Have you delivered (or started continuous service)?
    │
    ├─ Not yet, they need a document for internal approval /
    │           payment arrangement → Send a PROFORMA INVOICE.
    │           Same fields as tax invoice, marked "Proforma". No GST trigger.
    │
    └─ Delivered (goods) or 30 days elapsed (services) →
            Send a TAX INVOICE immediately.
            GST liability triggers. Goes on GSTR-1.

The common confusions, answered

”Can I turn a quotation into an invoice?”

Not directly. You re-enter the details (same customer, same items) into a fresh tax invoice with a new invoice number. Most software auto-does this — tap “Convert to invoice” on a quotation and it copies the line items. The quotation stays in your records as the offer; the invoice is the legal document.

”My customer keeps asking for a proforma but I don’t issue one — can I just send them the final invoice?”

Usually yes. Proforma is a courtesy step, not a legal requirement. Some customers (especially corporate buyers) need a proforma for their internal PO / payment-approval workflow. If yours doesn’t, skip it and go straight to tax invoice on delivery.

”What if the customer overpays on the proforma?”

You issue the tax invoice for the actual amount, refund the excess, and log it. Don’t try to “adjust” it into the next order — it muddies GST records.

”Does a quotation need to have GST calculated?”

Not legally. You can show pricing as either “₹850 + GST” or “₹850 (including GST)” or just a round number. The actual GST split is computed when you issue the tax invoice. For B2B buyers who need to compare landed cost, showing the GST breakdown on the quotation is polite.

”Credit notes — where do they fit?”

Credit notes are post-invoice adjustments. If a tax invoice went out for ₹1,00,000 and you later gave a ₹5,000 discount, you issue a credit note for ₹5,000. This reverses part of the original GST liability. They go on GSTR-1’s CDNR section. Nothing to do with quotations or proformas.

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What 21bill does

• Three separate numbering series: quotations, proforma (optional), tax invoices
• “Convert to invoice” button on any accepted quotation
• Proforma invoices marked with a watermark “PROFORMA — NOT A TAX INVOICE” on the PDF
• Only tax invoices appear on GSTR-1 exports — quotations and proformas are excluded automatically

If you’ve been getting these document types muddled, the fix is half legal clarity and half a tool that enforces the distinction. 21bill is invite-only — request access to evaluate it.

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⚠️ Not tax advice. Consult a CA for any specific filing or notice. Rule citations are to CGST Rules 2017 as amended to 2026.