There are various kinds of invoices, but a proforma invoice creates various doubts in the mind of business owners. Have you also faced a situation where you have received an invoice marked as a proforma invoice, and you remain confused as to what to do with this specific invoice? In today’s blog, we will try to solve the mystery of proforma invoices and discuss their relevance under GST.
What is a proforma invoice?
In simpler terms, a proforma invoice is a preliminary or estimated invoice, it is made to give a rough idea to the buyer about the final amount and total GST payable. A Proforma invoice is made before the final supply of the goods, a proforma invoice includes the estimated cost of shipment, GST, and commission as applicable.
The Proforma invoice is a replica of the final invoice, it is made by free invoicing software for PC, it saves the buyer from any future unexpected or unforeseeable charges during the final stage, and it gives assurance to the buyer that he needs to pay the amount as per the proforma invoice. The buyer is not required to pay GST for the proforma invoice, as this invoice is not legally binding and its main purpose only is to inform the buyer.
At what stage does the seller issue the proforma invoice?
A Proforma invoice is issued at a pre-sale stage, it is issued at the request of the buyer. There is no relevance of the proforma invoice once the sale is concluded, its main objective is to inform the buyer about the estimated price so, the seller issues a proforma invoice at a pre-sale stage. Based on the proforma invoice, the buyer confirms his order.
Purpose of proforma invoice
A Proforma invoice is an estimate invoice, it signifies that the seller has agreed to deliver the items as per the price mentioned in the invoice.
Proforma invoices are mainly used in the business of export and import, to ensure hassle-free smooth delivery of the products. Here we have discussed a few purposes for which proforma invoices are used.
In inter-state transactions, proforma invoices are used to calculate GST and other taxes applicable to the transaction. In the cross-country transaction, proforma invoices are used to calculate estimated custom duty and commission, if applicable.
The clarity in the transaction
law never mandates the issue of proforma invoices, traders rely on the proforma invoice as a custom. Proforma invoice gives clarity to both seller and the buyer, they both can understand on what line they are giving their consent. In proforma invoices, they can discuss exchange rates, charges and other variables before the actual sales are executed.
The proforma invoice contains all the essential detail of the buyer and all the modification made by the parties after the issuance of the proforma invoice, in the final invoice the seller can copy all the essential details of terms and conditions from the proforma invoice only.
GST and Proforma invoices
It is not required by the seller to mention GST no. on the proforma invoice, as the proforma invoice is not legally binding upon any of the parties. Still, the seller can mention GST on the proforma invoice as a matter of prudence.
Similarly, the buyer is also not required to pay any GST against the proforma invoice, as it is not an invoice in the legal sense and it serves only as a rough estimate.