Tax Invoice vs Bill of Supply โ Rules, Differences & ITC Impact (2026)
One of the most frequent points of confusion for small business owners and shopkeepers in India is choosing between a Tax Invoice and a Bill of Supply. While both documents record a commercial sale, issuing the wrong one can lead to severe tax penalties or cause your business clients to lose their valuable Input Tax Credit (ITC).
Here is a plain-English breakdown of the differences, legal sections under the CGST Act, and when you must use each format.
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1. Quick Summary of Differences
| Feature | Tax Invoice (Section 31) | Bill of Supply (Section 31(3)(c)) |
|---|---|---|
| Who Issues It? | Regular GST-registered businesses | Composition scheme dealers, sellers of exempt goods, & unregistered traders |
| Is GST Charged? | Yes (CGST + SGST or IGST) | No (Tax cannot be collected) |
| Can Buyer Claim ITC? | Yes, full Input Tax Credit | No, zero Input Tax Credit |
| Buyer GSTIN Required? | Mandatory for B2B supplies | Optional |
| HSN Code Required? | Mandatory (4 or 6 digits) | Recommended / Simplified |
| Document Heading | Must clearly state โTAX INVOICEโ | Must state โBILL OF SUPPLYโ |
2. Tax Invoice: When to Issue & Key Rules
Under Section 31 of the CGST Act, 2017, a registered person supplying taxable goods or services must issue a Tax Invoice.
When You MUST Issue a Tax Invoice:
- You are registered under the Regular GST Scheme.
- The goods or services you sell are taxable (e.g., electronics, consulting, clothing, machinery).
- You are supplying to another registered business (B2B), allowing them to offset the tax paid against their future liabilities.
What Happens If You Make a Mistake?
If a tax invoice is issued with missing fields (like missing Place of Supply or incorrect GSTIN), your customerโs Input Tax Credit can be denied by the GST portal under Rule 36(4).
3. Bill of Supply: When to Issue & Key Rules
Under Section 31(3)(c) of the CGST Act, a registered person cannot collect any tax from the recipient and must issue a Bill of Supply in the following three scenarios:
Scenario 1: Composition Scheme Taxpayers (Section 10)
Small businesses with annual turnover up to โน1.5 Crore (โน75 Lakhs for special states) can opt for the GST Composition Scheme, paying a flat 1% to 6% tax rate.
- Composition dealers cannot charge GST from their customers.
- Every bill must carry this mandatory statutory text:
"COMPOSITION TAXABLE PERSON, NOT ELIGIBLE TO COLLECT TAX ON SUPPLIES"
Scenario 2: Supply of Exempt Goods or Services
If you sell wholly exempt items (such as fresh fruits, vegetables, unprocessed food grains, or milk), no GST is chargeable. You must issue a Bill of Supply instead of a Tax Invoice.
Scenario 3: Unregistered Sellers (Turnover under โน20L/โน40L)
Freelancers, consultants, and micro-merchants whose turnover has not reached the mandatory GST registration threshold must not collect GST. They issue standard Bills of Supply or retail receipts.
4. Invoice-cum-Bill of Supply (Special Rule 46A)
What if you sell both taxable goods and exempt goods to an unregistered customer in a single order? Under Rule 46A of the CGST Rules, a registered person can issue a single document titled โInvoice-cum-Bill of Supplyโ detailing both the taxable items with GST breakdown and the exempt items without tax.
5. Frequently Asked Questions
Can a composition dealer issue a Tax Invoice?
No! It is illegal for a composition dealer to issue a Tax Invoice or collect tax from customers. Doing so can lead to penalties under Section 122 and cancellation of composition status.
Can an unregistered freelancer charge GST?
Absolutely not. Collecting GST without a valid 15-digit GSTIN is a criminal offense under Section 132 of the CGST Act. If you are unregistered, select โBill of Supplyโ in our generator and set the GST rate to 0%.
How to generate both formats for free?
Visit our Free Online GST Invoice Maker to create clean, print-ready A4 PDFs for both Tax Invoices and Bills of Supply without watermarks or account signups.