TL;DR: A tax invoice is issued for a regular taxable supply and shows the GST charged, CGST plus SGST or IGST. A bill of supply is issued when no GST is charged, either because the supplier is under the GST Composition Scheme or the supply is exempt, and it never shows a tax amount. Issuing the wrong one is a common, avoidable compliance mistake.
This guide covers when a tax invoice is required versus a bill of supply, what each document must and must not show, and why only one of them supports an input tax credit claim.
What Is a Tax Invoice and What Is a Bill of Supply?
A tax invoice is the document a regular GST-registered supplier issues for a taxable sale, showing the GST charged, CGST plus SGST for an intra-state sale or IGST for an inter-state sale.
A bill of supply is issued when no GST is charged on the transaction, either because the supplier is registered under the Composition Scheme, which cannot charge GST separately, or because the goods or services being supplied are exempt from GST altogether.
The two are not interchangeable formats for the same transaction. Which one applies depends entirely on whether GST is actually chargeable on that specific supply.
Key Differences at a Glance
Tax Invoice vs Bill of Supply: Side by Side
The two documents differ on four points that determine which one applies:
Tax charged. A tax invoice shows CGST/SGST or IGST; a bill of supply shows no tax amount at all.
Who issues it. A tax invoice is issued by a regular registered taxpayer on a taxable supply; a bill of supply is issued by a Composition Scheme dealer or on an exempt supply.
Input tax credit. A buyer can claim ITC against a valid tax invoice; a bill of supply carries no ITC, since no tax was charged.
Legal basis. Both are governed by Section 31 of the CGST Act, tax invoice for taxable supply, bill of supply specifically for composition or exempt cases.
Where Businesses Get This Wrong
The same compliance mistakes show up repeatedly:
Composition dealers charging GST on an invoice. A dealer under the Composition Scheme cannot separately charge GST at all, doing so on what should be a bill of supply is a direct compliance violation.
Issuing a tax invoice for an exempt supply. Charging GST on goods or services that are actually exempt overstates tax liability and confuses the buyer’s own filings.
Buyers trying to claim ITC on a bill of supply. Since no tax was charged, there is nothing to claim credit against, attempting it gets flagged in GST return reconciliation.
Not tracking the exemption or composition status correctly. A supplier’s registration type or an item’s exemption status can change, and invoicing software that is not updated keeps issuing the wrong document type.
Mixing taxable and exempt line items on one document without splitting correctly. A single transaction with both taxable and exempt items needs the tax treatment handled per line, not defaulted to one document type.
Are your invoices automatically issued in the right format for each sale’s actual tax treatment, or does someone decide manually?
TranZact runs GST e-invoicing off each sale’s actual tax treatment, so a taxable supply gets a proper tax invoice with the correct CGST/SGST or IGST split, not a generic template someone has to double-check.
Book a free demo →
Tax Invoice vs Bill of Supply vs Delivery Challan
Tax charged: a tax invoice shows GST; a bill of supply and delivery challan both show none, for different reasons.
Purpose: a tax invoice and bill of supply both document a completed supply; a delivery challan documents movement of goods, which may not be a supply at all.
Who uses a bill of supply: composition dealers and exempt-supply sellers, regardless of whether goods are moving or already delivered.
Who uses a delivery challan: any GST-registered business moving goods for job work, transfer or return, not tied to composition or exemption status.
Manufacturer relevance: knowing which of the three applies to a given transaction is what keeps GST returns and ITC claims accurate on both sides.
How TranZact Helps With Invoice Type
TranZact’s GST e-invoicing generates a compliant tax invoice with the correct IRN and tax breakup for every taxable sale, tied to the actual order and dispatch, not entered separately by hand.
It is built around regular taxable supply. If your business operates under the Composition Scheme or deals primarily in exempt goods, confirm your invoicing setup with your GST consultant, since that changes which document format applies.
FAQs
What is the difference between a tax invoice and a bill of supply?
A tax invoice is issued when GST is charged on a taxable supply and shows the tax breakup. A bill of supply is issued when no GST is charged, either because the supplier is under the Composition Scheme or the supply is exempt.
Can a bill of supply be used to claim input tax credit?
No. Since no GST is charged on a bill of supply, there is no tax amount for the buyer to claim as input tax credit.
Who is required to issue a bill of supply instead of a tax invoice?
Businesses registered under the GST Composition Scheme, and any supplier making a wholly exempt supply, are required to issue a bill of supply rather than a tax invoice.
What happens if a Composition Scheme dealer issues a tax invoice by mistake?
It is a compliance violation, since Composition Scheme dealers cannot separately charge GST. It should be corrected to a bill of supply, and the dealer should not collect a tax amount from the buyer.
Can one business issue both tax invoices and bills of supply?
Yes, if the business sells both taxable and exempt goods or services under normal GST registration, it issues a tax invoice for taxable supplies and a bill of supply for the exempt ones.
Related Reading
Check out other blogs
Born in India. Building for the world.
Built by IIT & IIM founders
