Tax Invoice vs Bill of Supply: Which Document Your Business Must Issue

Who issues a bill of supply

• Composition dealers under Section 10, who pay tax at a flat rate on turnover and cannot collect GST from customers.
• Suppliers of goods or services that are wholly exempt, or that attract a nil rate, or that are outside the GST charge entirely.
• Exporters supplying under a letter of undertaking without payment of integrated tax, who issue a tax invoice carrying an endorsement rather than a bill of supply — a distinction worth noting because it is often conflated.

What it must contain

Rule 49 requires the supplier's name, address and GSTIN; a consecutive serial number unique for the financial year, not exceeding sixteen characters; the date of issue; the recipient's name, address and GSTIN or UIN where registered; the HSN or SAC; a description of the goods or services; the value after any discount; and a signature.

What it must not contain is a tax amount. A composition dealer must additionally state prominently that they are a taxable person paying tax under the composition scheme and are not eligible to collect tax on supplies.

The two ways this goes wrong

Charging GST on what should have been a bill of supply is a collection of tax without authority. Section 76 requires any amount collected as tax to be paid over to the government whether or not the supply was taxable, so you remit money you have no corresponding liability for, and your customer has claimed a credit that will be reversed.

Issuing a bill of supply for a taxable sale is the opposite failure: the tax is still payable, but you have not collected it, so it comes out of your margin along with interest at eighteen per cent.

Mixed supplies: the combined document

Where a registered person supplies taxable and exempt goods or services to an unregistered person in the same transaction, Rule 46A permits a single invoice-cum-bill-of-supply. It carries the tax on the taxable component and no tax on the exempt component, in one document.

This is useful for retail and restaurant businesses where a basket routinely mixes both, and it avoids issuing two documents for one sale.

The small-value relaxation

A bill of supply is not required where the value of the supply is less than two hundred rupees, provided the recipient is unregistered and does not ask for one. The supplier must still issue a consolidated bill of supply at the close of each day for all such supplies.

The same two hundred rupee relaxation applies to tax invoices under Rule 46, with the same daily consolidation requirement.

Frequently asked questions

### Can I claim input tax credit on a bill of supply?

No. A bill of supply carries no tax, so there is nothing to claim. This is the central commercial consequence of buying from a composition dealer: the price may be lower, but no credit flows, which can make a registered supplier cheaper in net terms.

### Does a composition dealer issue tax invoices at all?

Not for their outward supplies. They issue bills of supply bearing the prescribed declaration that they cannot collect tax. They do, however, issue tax invoices where they are liable to pay tax under reverse charge on inward supplies, because in that situation they are the person discharging the tax.

### What if I supply both taxable and exempt goods?

Issue a tax invoice for the taxable component and a bill of supply for the exempt one, or where the recipient is unregistered use the combined invoice-cum-bill-of-supply permitted by Rule 46A. You will also need to apportion input tax credit under Rule 42, since credit attributable to exempt supplies is not available.