Guide on how to raise GST invoice for business
Ever since the implementation of GST in India back in 2017, businesses have reaped the benefits of this tax structure by being able to pay fewer taxes and dealing with other GST-registered companies to claim the input tax credits.
The important thing that makes this system work is the GST invoice which acts as tax evidence. Without it, businesses would not be able to gain the benefits. So if you want to know how to raise GST invoice, then you’re in the right place.
A goods and services tax invoice is nothing but a bill that is issued by a supplier to their buyers which includes the details of all the goods or services being provided along with the tax.
This tax invoice can be created manually or digitally using accounting software tools. This document has the information of both the buyer and the seller.
From a taxation standpoint, the GST invoice is an important document representing a source of truth for the proof of demand for payment made by a business after a sale and also acts as proof of payment for the buyer.
As per Section 31 of the CGST Act, 2017 it is mandatory for a GST-registered supplier to know how to raise GST invoice for every sale that is made by the business for transactions above Rs. 200.
If the supplier is unregistered but the customer still demands a tax invoice, then they must issue it regardless of the taxable value along with a payment voucher.
In October 2020, e-invoicing was introduced and made compulsory for entities whose turnover was Rs. 500 crores or above.
From April 1, 2022, this limit was brought down to businesses with a turnover of over Rs 20 crore and will have to generate an electronic invoice for B2B transactions.
• Goods - Suppliers need to raise a GST invoice for their buyers when the goods are being transported. The original copy should be sent to the buyer, the duplicate copy must be kept by the supplier, and the third copy must be given to the transporter.
• Services - For services, a business must know how to raise GST invoice after the service has been provided to the customer. The maximum time limit for issuing this invoice is 30 days from the provision of the service.
• Financial (NBFC) & banking services - Goods and services tax is also applicable on most of the transactions conducted by banks and NBFCs throughout the country.
For goods, a GST invoice must be raised at the time of transporting the goods so that a copy can be given to the transportation business.
Regarding services, the deadline for raising the tax invoice is 30 days and for NBFCs and banking services it is 45 days.
A GST invoice is compulsory for regular taxpayers. If you are a composition taxpayer, then you must issue a ‘Bill of Supply’ which does not include goods and services tax.
A composition taxpayer is an entity whose turnover is up to Rs. 75 lakhs or even Rs. 50 lakhs in some states. This tax scheme aimed to make the tax compliance process simpler for small businesses.
HSN - HSN in a GST invoice stands for ‘Harmonized System of Nomenclature.’ A 6-digit number represents an HSN code for the classification of goods both national and international.
This system includes 5000+ products and is accepted worldwide in over 200 countries making it easy for goods to be internationally traded.
SAC code - Since HSN codes classify products, there is a separate system that has been set in place by the service tax department in India to classify services known as SAC or ‘Services Accounting Code.’
THE SAC code system was adopted by the GST council to levy GST in India with 5 different slabs ranging from 0%, 5%, 12%, 18%, and 28% depending on the type of service.
CGST - CGST refers to ‘Central Goods and Services Tax.’ It is a tax that is charged for the intrastate supply of goods and services by the central government and falls under the CGST Act, 2017.
SGST - SGST refers to ‘State Goods and Services Tax.’ It is also an intrastate indirect tax that is charged for the supply of goods and services by the respective state government.
So basically, for any purchase or consumption of goods and services happening within a state, the levy of GST will be shared by the central and state governments in the form of CGST & SGST.
IGST - IGST refers to ‘Integrated Goods and Services Tax.’ It is charged on all inter-state supplies of goods and services. Even in the case of import or export, IGST is charged.
For exports specifically, the tax is zero-rated and it is shared between the state and central government.
There are many instances where businesses have to pay taxes with a value that has decimal points. In such cases, it was common practice to round off the number to pay taxes. A business can round off their taxes using one of these three methods:
• Normal rounding - When the value of the decimal point i.e. in this case paise, is more than 50 paise, then amount will be rounded up to the nearest rupee and if the value is below 50 paise, then amount will be rounded down to the nearest rupee.
• Downward rounding - The rounding off of tax is always rounded downwards to the nearest rupee in this method.
• Upward rounding - The rounding off of tax is always rounded upwards to the nearest rupee in this method.
With the implementation of GST, it was decided that the standard/normal rounding-off method would be followed.
Tax invoice - A Tax Invoice is the most simple form of GST invoice that must be issued by every person under the Regular Scheme.
A tax invoice has important details such as the invoice number, invoice date, the buyer’s name, GST number of the buyer, details about the goods and services being provided, HSN code, address of shipping & billing, and the applicable tax rate.
This document is meant to help the supplier collect payment along with tax and also let the buyer claim input tax credit.
Bill of supply - Certain provisions have been set under the GST Act where a supplier cannot charge GST. In these cases, the supplier must provide the buyer with a ‘Bill of Supply.’
This document is issued in cases where the goods or services being provided are exempt from GST or you are a supplier who is registered under the ‘Composition Scheme’ instead of the ‘Regular Scheme.’
Invoice and bill of supply combined - A situation may arise where you as a supplier are providing goods and services that fall under GST tax laws as well as those that are exempt from it.
In such cases, rather than creating two separate documents, you can create a single ‘Invoice-cum-bill of supply’ as per notification no. 45/2017 issued by GST authority on the 13th of October, 2017.
Reverse charge invoice - A reverse charge invoice is applicable when the supplier of goods and services is not registered under GST, so the recipient of the goods and services is liable to pay the taxes directly.
Debit & credit note - A supplier sends the buyer a credit note in the following situations - If there is a decrease in the price of goods or services/when a discount is made/ when goods are returned to the supplier.
There is a time limit for issuing a credit note: It can either be done in the month of September after the end of a financial year or up to filing the GST annual returns. A debit note is issued by the supplier when the amount charged in the invoice is less than the correct value.
In case the buyer is not registered under GST and the value of the transaction is more than Rs. 50,000 then the name and address of the recipient must be included in the invoice.
A tax invoice that is created for someone outside India is known as an export invoice. Most of the details that need to be added remain the same except for a few.
Since the country of the buyer is different than India, the place of supply, in this case, will be termed as ‘Outside India.’
There are some specific and mandatory guidelines to be followed whilst learning how to raise GST invoice.
3 copies of the GST invoice need to be raised when you are dealing with the supply of goods. The original copy should be given to the buyer so they can claim the input tax credit.
The duplicate should be kept with the supplier for proof of supply, and the third copy should be given to the transportation service as that will also be an additional cost in the transaction.
2 copies of the GST invoice must be raised when a service is provided to a client or customer. The original is to be sent to the customer and the duplicate is to be kept by the service provider.
With the implementation of GST, it was decided that the standard/normal rounding-off method would be followed.
Header - The header of a GST invoice should clearly mention ‘Tax Invoice’ on it. If this is not present as a header on the document then it cannot be considered a tax invoice.
Invoice number - An invoice number is a unique identifying number that can be used to track and ascertain what that invoice was made for. Each tax invoice you generate will have a unique number different from the others.
This helps keeps things organized when data needs to be cross-checked and verified.
Date of Issue - The date of issue of a GST invoice is crucial for compliance reasons as there are many situations where a tax invoice needs to be generated within a particular time period.
Having the date of the issue mentioned on the invoice acts as evidence for compliance.
Name of buyer - The name of the buyer or recipient needs to be added to the tax invoice.
GSTIN of buyer - If you are selling to a GST-registered business, then you must include their GSTIN(Goods and Services Tax Identification Number) on the invoice.
Shipping & billing address of the buyer - The shipping and billing address needs to be mentioned on an invoice regardless of whether they are the same address or not.
Place of supply - The place of supply in a GST invoice refers to the place where goods and services are being delivered or consumed.
HSN code - A HSN code is a 6-digit number that helps in the classification of the type of good. This system is accepted worldwide and thus helps in the import and export of goods.
SAC code - Just like the classification system for goods is done using HSN codes, the classification and tax slab of a particular service is done using SAC(Services Accounting Code).
List of goods/services - The invoice must detail the list of goods that are being supplied and the services that are being rendered.
Metrics - Along with the goods and services, an invoice must also mention specifics about a transaction such as the quantity, unit, price, discounts, and other information about the goods and services.
Applicable GST tax rate and type of tax - The applicable tax rate on the total amount of the invoice along with which type of tax is applicable in that case such as SGST/UTGST, CGST, or IGST must be clearly calculated and mentioned in the GST invoice for business.
The details for an invoice to an ISD or Input Service Distributor are slightly different than a normal GST invoice:
• The date of issue
• Name, address, & GSTIN of the person who is eligible for receiving the credit
• Amount of credit distributed
• A signature or digital signature of the input service provider for authentication
When it comes to an insurer, a banking institution, a non-banking institution, or a financial institution the supplier must issue a combined tax invoice or any other document that does not necessarily have to be named as a tax invoice for all the supplies they made that month.
Apart from the optional information in a tax invoice such as the recipient’s address and serial number, the document should contain all the other information that is prescribed for a normal GST invoice.
A supplier of passenger transport services must follow all the standard GST invoice guidelines and can add optional information such as:
• A serial number
• The address of the recipient of the service.
A goods transport agency that is transporting goods through roads has to issue a tax invoice or any such document comprising the following details:
• The weight of the goods being transported
• Name of the individual who is sending and receiving the goods
• The registration number of the vehicle using which the goods are transported
• Specific details of the goods that are transported as in any other invoice
• Details regarding the place of origin and supply/where they are being sent
• GSTIN of the person who has to pay the tax as a consignor, consignee, or as the GTA
• Other necessary fields as mentioned in the normal GST invoice format
Suggested read - Impact of GST on working capital